The latest CFTC positioning data recorded a decline in dollar longs to the lowest level for over three months which provided some degree of protection for the US currency on Monday, especially as there was also a return to net Euro longs in the latest week.
There were fresh concerns surrounding China’s property sector with reports that funding to real-estate companies was being restricted. There was a sharp decline in the Shanghai equities index which triggered regional market declines and a deterioration in risk appetite. The yen gained fresh support and USD/JPY dipped to lows below 102.20. The dollar continued to find robust buying support on dips and moved back to 102.50 in New York.
The latest German IFO index was stronger than expected at 111.3 for February from 110.6 the previous month and this was the strongest reading since the middle of 2011. EUR/USD did spike higher following the release, but was unable to build on the gains with tough resistance on approach to the 1.3780 area.
ECB President Draghi stated that the ECB was ready to act if there was a deterioration in the inflation outlook and that all the necessary information would be available at March’s policy meeting. The latest euro-zone inflation data will be watched very closely on Friday and the money-supply data will also be very important on Thursday as speculation over ECB action builds once again.
The weight of overhead resistance again proved too formidable to break down and EUR/USD retreated towards the 1.37 area as short-term buyers bailed out while sellers still struggled to gain sustained control.
Sterling had been subjected to very choppy trading surrounding the London fix on Friday with a GBP/USD decline of close to 100 pips in the following 30 minutes. There was another period of high volatility in early Europe as the pair dipped sharply to just below 1.6600 from around 1.6650 before rallying equally strongly.
Markets remained on high alert with expectations of further choppy trading at fixes over the next two days and there was a fresh slide during New York trading with another sharp fall to test support below the 1.66 level.