Risk aversion surged in US trading Thursday on reports that a Malaysia aircraft had been shot down over the Ukraine. USD/JPY spiked below 101.25 and dipped to lows under 101.10 after geo-political concerns were stoked further by an announced land offensive in Gaza by Israeli forces. US bond yields fell to 7-week lows below 2.45%, lessening the potential for US buying on yield ground while EUR/JPY retreated to fresh five-month lows below 137.0.
There was a generally more measured tone in Asian and early European trading Friday as major bourses, although weaker managed to avoid heavy losses. Traders continued to maintain a buy the dip mentality in USD/JPY which pushed back to the 101.40 level.
There was further initial EUR/USD support in the 1.3520 area with any rallies quickly attracting selling interest on longer-term expectations of further weakness. Liquidity inevitably deteriorated ahead of the weekend, either leaving the potential for directionless trading or the potential for sharp moves on positioning and stop-loss grounds.
In the event, there was a surge in dollar buying support as a large buyer stepped into the market which pushed the currency stronger as it challenged key technical levels. EUR/USD dipped below the crucial 1.3500 level for the first time since February with USD/CHF also dragged higher to challenge the pivotal 0.9000 level.
Sterling had already been on the defensive during the European session with a fresh GBP/USD retreat to below 1.7100 and wider dollar gains pushed the pair to lows below 1.7050. There were some media reports of a dovish interview by Bank of England Governor Carney due to be released over the weekend, rumours which were denied by the Bank of England press office.
The Canadian inflation data was in line with expectations with a 2.4% annual increase while there was a much stronger than expected reading for wholesale sales at 2.2% from a revised 1.4% previously. In very choppy trading USD/CAD dipped to lows below 1.0710 following the release before rallying to 1.0735 in line with general dollar gains. AUD/USD was unable to hold a brief spike above the 0.9400 level moving back to 0.9370.
The US University of Michigan consumer confidence index dipped to 81.3 from 82.5 previously, the lowest reading since March. Although there was an increase in inflation expectations, EUR/USD regained the 1.3500 level.