The latest Japanese trade data was substantially weaker than expected with a record deficit for fiscal 2013/14 as a modest expansion in exports was dwarfed by a continued surge in imports. The data reinforced a lack of confidence in medium-term Japanese fundamentals and also maintained pressure for a competitive yen even if regional trade stresses intensify. In response, USD/JPY strengthened to a two-week high around 102.60 on Monday with buying pressure compounded by purchases orders from domestic banks.
There was a cautious tone surrounding events in Ukraine with the deal brokered last week already appearing vulnerable to collapse after reports of gunfights between the Ukraine military and pro-Russian factions. These concerns curbed aggressive yen selling to some extent and AUD/USD was unable to make any significant headway during the Asian session as it drifted lower towards 0.9320.
With most markets closed on Friday and many European markets still closed on Monday, the underlying tone in Europe was extremely quiet with very lacklustre conditions. Markets were waiting for further evidence on the Euro-zone and US economies to assess whether there was the potential for a breakout from narrow ranges and whether the ECB doves would get more ammunition in their battle for decisive bank action to boost internal demand.
EUR/USD continued to take some comfort from the ability to the hold the 1.3800 area and moved higher to 1.3830 before sellers emerged once again and pushed the pair back towards 1.3800 ahead of the US open. USD/CHF was able to edge higher to the 0.8835 area as the franc was unable to secure defensive support while GBP/USD consolidated just below 1.6800 as Sterling held firm on the main crosses with EUR/GBP retreating to the 0.8220 area.