FX Market Summary 07-24-2014: Dollar’s Rivals Stumble

There has been no shortage of macro events and market reaction over the past 24 hours with the dollar maintaining a firm tone as several rival currencies hit trouble.

Centre-stage during the Asian session was the Reserve Bank of New Zealand interest rate decision. The bank delivered the expected fourth successive rate increase to 3.50%, but also signalled the expected pause in hikes. The main focus was on comments over an over-valued new Zealand dollar which was described as being at un-justified levels by Governor Wheeler. This phrasing inevitably triggered major speculation over intervention and NZD/USD plunged from highs above 0.8700 to lows below 0.8600.

Although the latest Chinese PMI data was stronger than expected at an 8-month high, the yen was able to resist heavy losses while the Australian dollar failed to take out major resistance levels with AUD/USD below 0.9480.

There was a fresh attack on the Euro early in the European session as it dipped below 1.3450 and triggered heavy stops with a low just below 1.3440.

There was a mixed batch of flash Euro-zone PMI releases for July with further deterioration in French manufacturing offset by a recovery in the services sector. Significant gains for Germany was the catalyst for a stronger overall performance which helped trigger a Euro recovery as shorts were hastily covered with a move back to the important former support area around 1.3480.

The UK retail sales data was slightly disappointing with a marginal 0.1% gain for June following a 0.5% decline previously. Although the second quarter was the strongest three-month period for 10 years, the data maintained some concerns that momentum was fading. GBP/USD only very briefly regained the 1.7050 level and retreated to test key support near 1.7000.

The latest US jobless claims data was significantly stronger than expected with a decline in the latest week to 284,000 from a revised 303,000 previously and the lowest level since 2006. The data gave the dollar fresh impetus as USD/JPY broke to highs above 101.80 on renewed Fed speculation while EUR/USD dipped lower again as US bond yields moved back to the 2.50% area.

Momentum stalled later in the US session with a slightly weaker than expected Markit US PMI index of 56.3 from 57.3 previously. The latest new-home sales data was also weaker than expected at 406,000 from a revised 442,000 previously.

The dollar still proved resilient as USD/JPY regained the 101.80 level while AUD/USD dipped to lows below 0.9420. GBP/USD remained firmly on the defensive as a break below the important psychological level of 1.7000 for the first time in four weeks which triggered stops and lows around 1.6970.

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