FX Market Summary 07-29-2014: Confidence Boost For The Dollar

Underlying dollar optimism remained intact Tuesday and the currency looked to push significantly higher across a wide range of pairs.

In Asia, the Japanese retail sales data was weaker than expected with a 0.6% decline in the year to June from -0.4% previously and unemployment increased to 3.7% from 3.5%. There were further expectations that the Bank of Japan could be forced into further monetary easing over the next few months, especially if the economy loses momentum and inflation dips lower again. The dollar was able to make some progress with USD/JPY moving to the 102.00 area in early Europe.

The latest raft of UK economic data was stronger than expected with mortgage approvals rising for the first time since March and stronger lending data which provided brief support to Sterling as GBP/USD made a fresh move towards the 1.7000 level.

Failure to break higher triggered a swift reversal and the downward move was enhanced by significant EUR/GBP buying, potentially in the context of month-end Euro demand from the Bundesbank. In this environment, GBP/USD dipped back towards 1.6950 for six-week lows.

There were further concerns that increased sanctions against Russia would have a greater negative impact on the financial sector and trade which would have an important adverse impact on the Euro-zone economy.

The dollar gained ground early into the US session as the market looked to take out important technical levels with a focus on 1.3420 for EUR/USD and 102.00 for USD/JPY as well as 1.6950 in GBP/USD.

There were underlying expectations of robust US data later this week and a more hawkish Fed tone in Wednesday’s Fed statement. The latest US consumer confidence data was stronger than expected with an increase to 90.9 for July from a revised 86.4 the previous month and this was the highest figure since October 2007 with a further improvement in the jobs measure bolstering expectations of a more optimistic Fed tone.

EUR/USD dipped to fresh 2014 lows just above 1.3400 as USD/JPY moved to a peak just below 102.10. Commodity currencies weakened as USD/CAD moved to highs near 1.0850 as AUD/USD dipped to lows around 0.9375. The New Zealand dollar was hit by weaker dairy prices and dipped to lows near 0.8500 and the weakest since the second week of June.

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