Consolidation was the theme for much of Friday with generally narrow ranges as markets shied away from aggressive positions ahead of the weekend.
The Nikkei index was weaker on Friday with a 1.4% decline, undermined by losses on Wall Street, which discouraged any fresh interest in carry trades and underpinned the yen. There was a similar impact from sustained downward pressure on bond yields as premiums over Japanese yields continued to decline. In this environment, USD/JPY was trapped near support and unable to make any fresh move towards the 102.0 resistance area.
Trading conditions were subdued in Europe with some upward pressure on peripheral yields raising some caution over the Euro, although the overall impact was limited. There were reservations over chasing the Euro lower following the successful test of 1.3650 support on Thursday while there was also little underlying buying enthusiasm given expectations of a June ECB rate cut.
In this environment, EUR/USD consolidated around 1.3700 with a large option expiry in New York also helping to protect the downside. USD/CHF was resilient while unable to make a fresh challenge on the 0.8950 resistance area.
The US housing data was stronger than expected with starts rising to an annual rate of 1.07mn for April from 0.95mn previously while permits also moved higher to 1.08mn. Although helping to ease immediate unease surrounding the housing sector, the dollar was only able to gain very brief support. The US unit was again undermined by the drop in benchmark bond yields to below the 2.50% level. There was also a slightly disappointing 81.8 reading for the University of Michigan consumer confidence index.
Sterling again proved resilient on Friday following the successful test of the 1.6750 support area on Thursday. With renewed EUR/GBP selling interest, GBP/USD was able to move back above the 1.6800 level.