The dollar held firm during the past 24 hours and found support at key technical levels without being able to break any major resistance.
Australian data did not have a major impact overnight Tuesday with a slight miss on retail sales. There was no surprise from the Reserve Bank with interest rates left on hold at 2.50% following the latest meeting. There were no fresh warnings over potential intervention and AUD/USD initially extended gains to the 0.9285 area before meeting resistance.
There was a downward revision to China’s final HSBC manufacturing release, but the potential impact was offset by a higher than expected non-manufacturing release at 55.5 for May from 54.8. Overall risk appetite held firm with key US indices close to record highs and the Japanese Topix index strengthened for the ninth successive succession. In this context, USD/JPY was able to resist any decline back through 102.0 support.
The Euro maintained a weak tone into the latest Euro-zone inflation data with markets expecting a weaker figure following yesterday’s benign German data. The headline flash inflation reading did indeed fall to 0.5% for May from 0.7%, matching the four-year low of March and maintaining underlying fears that inflation is too low. There were strong expectations that the ECB would move to cut benchmark interest rates this week. Markets had, however, already priced in a weak figure and EUR/USD was again able to find support below 1.3600.
Frustration at the inability to push the pair lower triggered a round of short covering with the pair pushing to a high above 1.3640 early in the New York session, the inability to break 0.9000 in USD/CHF also a restraining influence. The rally stalled ahead of the 200-day moving average as the more bearish tone seen in US Treasury markets was important in preventing further dollar selling.
The UK PMI construction data was slightly weaker than expected at 60.0 for May from 60.8 with some concerns that bottlenecks were preventing more substantial gains. The overall impact was limited with the housing sector once again a major focus. The Nationwide reported an annual increase of 11.1% for May, maintaining speculation over overheating despite some evidence that tighter mortgage controls is having some impact. GBP/USD was blocked around 1.6780 and dipped weaker from mid-European session with a test of support around 1.6730.