FX Market Summary 05-29-2014: Dollar Stalls At Resistance

The dollar was unable to make further headway on Thursday as consolidation dominated. The latest Japanese retail sales data was weaker than expected with a 4.4% annual decline as the sales tax increase took effect. The latest capital-account data registered a slowing of outflows from Japan which will also tend to curb potential short-term yen selling pressure. The dollar was unable to gain any fresh support given yield considerations, trapped below 102.0 resistance, and USD/JPY dipped to lows below 101.50 early in Europe. EUR/JPY approached the 138.00 support area with GBP/JPY testing important support around 170.00.

The main focus in Asian trading was the Australian dollar which initially dipped lower on the back of weaker than expected capital-spending data. AUD/USD briefly dipped to lows around 0.9210 before recovering ground on an optimistic forward assessment of investment. A short squeeze quickly developed which pushed the Aussie to a peak just above the 0.9300 level.

European developments were relatively sparse, especially with many markets closed for the Ascension Day Holiday. EUR/USD attempted to find some relief after dipping to three-month lows below 1.36 on Wednesday, although underlying sentiment remained negative. There was a corrective crawl to the 1.3620 area ahead of the US open.

Mixed US economic releases did not provide major direction as consolidation continued to dominate. There was a steeper than expected downward revision to first-quarter GDP with a figure of -1.0% from an initial 0.1% estimate. In contrast, there was a steeper than expected decline in jobless claims to 300,000 in the latest week from a revised 327,000.

After a brief dollar spike lower, the more forward-looking components attempted to win out. EUR/USD retreated to re-test support below the 1.3600 level as USD/JPY edged higher to 101.70, but the dollar was unable to break any further major resistance levels.

Sterling remained on the defensive after GBP/USD’s slide to six-week lows below 1.6700 on Wednesday. Comments from Bank of England member Weale stated that there should be an interest rate increase sooner rather than later were unable to provide significant support and weak corporate lending data reminded markets of fragile underlying fundamentals. GBP/USD did find support below 1.6700 without being unable to stage any significant recovery.

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