FX Market Summary 05-19-2014: Yen Continues To Advance

Market ranges remained generally narrow on Monday with no fresh leads from a very sparse economic calendar.

The latest CFTC data recorded a move back to speculative long dollar positions after several weeks with net shorts. This will make the EUR/USD less vulnerable to a closing of long positions and markets will still be wary of building aggressive shorts given, especially as there has already been a shift in sentiment.

Asian bourses were generally on the defensive during Monday and the benchmark Nikkei index moved lower by around 0.6% which tended to discourage any aggressive yen selling. The dollar was also hampered by a decline in yield support with a continuing threat of stale longs being forced to liquidate positions after a month-long slide.

USD/JPY was subjected to renewed selling during European trading with a test of the 200-day moving average at 101.23. This level failed to provide any strong support and the dollar spiked lower to the 101.10 area as stops were triggered before finding some support.

There was further intense speculation surrounding an ECB rate cut in June. Bundesbank head Weidmann expressed caution over any targeting of the Euro, warning that efforts could prove counter-productive. ECB’s Mersch stated that the bank must fight low inflation risks and that the likelihood of action at June’s meeting had grown substantially. EUR/USD briefly spiked lower before finding support close to the 1.3700 level and speculative players unable to extend losses which triggered a short-covering recovery to the 1.3730 area.

Over the weekend, Bank of England Governor Carney stated that he was concerned over the housing sector due to severe structural problems within the sector and that direct measures may have to be considered.

There will be underlying speculation that monetary tightening will be needed, but any direct measures would also lessen the need for rate hikes and, in this context, would have a mixed impact on Sterling. The latest Rightmove house-price index registered a 3.6% increase for May and a 8.9% annual increase which will maintain over-heating concerns. In this context, GBP/USD found support on approach to the 1.68 area and pushed to challenge resistance in the 1.6840/50 band early in US trading.

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