FX Market Summary 06-30-2014: Positioning Nudges Dollar lower

The dollar was unable to make any significant impression during the Asian session on Monday with the trade-weighted index continuing to drift near one-month lows.

The Australian dollar initially held firm as AUD/USD looked to challenge the 0.9430 resistance area with failure here triggering significant selling. There was also caution ahead of Tuesday’s Reserve Bank policy meeting with expectations of a generally dovish slant and AUD/USD dipped back below the 0.9400 level.

The latest Euro-zone flash inflation reading was slightly below expectations at 0.5%, unchanged from the previous month and still at four-year lows, although the core rate was marginally higher at 0.8%. Money supply data remained weak at 1.0% M3 growth in the year to May while there was a contraction in lending of 2.0% from 1.8% previously and this was the 25th successive decline in this series.

The overall market impact was limited given that the money-supply data is for the month of May, before the ECB cut interest rates at the June meeting. Essentially, the central bank is now in a wait-and-see mode, but pressure will build if there is no early pick-up in monetary growth.

Month-end positioning had a significant impact, especially on Sterling. There was initial reported selling in Europe with a GBP/USD slide to test support near 1.7000. The pair reversed quickly on reported demand into the fixing with a move back to 1.7050 as EUR/GBP again hit resistance close to 0.8030.

EUR/USD continued to benefit from short covering after the failure to break below the 1.3580 area last week. There were also some expectations that month-end positioning would lead to modest dollar selling. This potential pressure was offset by speculation over a dovish ECB policy statement and robust US payrolls report, both events due on Thursday with the US Independence Day holiday on Friday tending to fore-shorten the week. USD/JPY maintained very tight ranges with support just below the 101.30 level.

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