EUR/USD again found support on approach to the 1.3580 area on Tuesday which discouraged bears and helped spark a rally back to the 1.3600 area.
Market conditions were generally very subdued in Asia on Wednesday with very narrow ranges. Equity markets were generally on the defensive following losses on Wall Street which tended to discourage carry-trade activity. USD/JPY was unable to regain the 102.00 level and consolidated just below this level while AUD/USD dipped to lows around 0.9355.
Trading incentives were also very limited during the first half of the European session. There was an increase in German consumer confidence to the highest level since late 2006 which discouraged further attempts at Euro selling with markets still on high alert over possible short covering given the failure to break lower.
Markets had been expecting a further downgrade of GDP growth for the final Q1 estimate with a consensus forecast of -1.8% from the -1.0% second estimate. In the event, there was a much sharper downward revision to -2.9% for the quarter as trade deterioration had an important negative impact. The latest durable goods orders data was also weaker than expected with a headline fall of 1.0% for May and a core decline of 0.1%.
This combination of weak data inevitably triggered a dollar spike lower across all major pairs. EUR/USD strengthened to the 1.3650 area while USD/JPY dipped to lows near 101.60 as US bond yields fell sharply with 10-year yields sliding to below 2.55%.
There was a stronger than expected US PMI services-sector report at 61.2 for June from 58.1 previously which helped stem further dollar damage even though it was unable to secure a significant recovery.
Sterling struggled to gain independent momentum on Wednesday with prevailing uncertainty following Bank of England Carney’s comments the previous day. There was a weaker than expected CBI retail sales estimate at 4 for June from 16 previously which had some dampening impact on confidence. GBP/USD did find support at the 1.6950 area and rallied to challenge 1.7000 after the weaker US data as EUR/GBP held above 0.8000.