FX Market Summary 06-11-2014: Euro Struggling To Recover

The Euro was unable to make a significant recovery on Wednesday as underlying yeld pressures remained a negative influence. Expectations that the Bank of Japan will hold policy steady this week with the potential for an upgrading of the economic assessment helped underpin the yen and US bond yields dipped slightly lower. The Japanese currency was broadly resilient with USD/JPY unable to gain any traction.

Cross-related movements continued to have an important impact on the yen and other majors. EUR/JPY remained on the defensive following the 200-day moving average break on Tuesday and dipped to test support below 138.0 in Europe. The Euro also dipped to fresh 18-month lows against Sterling as EUR/GBP briefly dipped below 0.8060.

GBP/USD was able to trade with a firm tone ahead of the key UK unemployment data with support below the 1.6750 level. There was a further fall in the claimant count in the latest month and the unemployment rate dropped to 6.6% from 6.8%, the lowest figure since the first quarter of 2009.

Sterling did spike higher following the data, but the positive impact was hampered by the latest earnings data with the annual increase dropping sharply to 0.7% from a revised 1.9% previously. This weakness suggested further vulnerability in underlying consumer spending which will also discourage near-term Bank of England tightening and GBP/USD was capped close to 1.6800.

EUR/USD did find support close to 1.3520 with reports of large bids on approach to this level with a suggestion that Asian sovereign names were looking to defend the 1.3500 area. The pair recovered to the 1.3550 area on a limited round of short covering, but underlying sentiment was still broadly negative and there were fresh losses in New York.

Underlying yield factors remained Euro negative despite a small decline in US rates and there were expectations that the Euro would be used as a funding currency. USD/CHF continued to probe above the 0.90 level without being able to make a convincing break above while USD/JPY dipped to test support below 102.0 as US treasury prices gained ground.

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