FX Market Summary 08-27-2013: Risk fears support yen and Swissy

Trading conditions have remained choppy with a lack of liquidity and underlying fears surrounding an increase in global risk aversion.

The latest US durable goods orders data was sharply weaker than expected with a headline decline of 7.3% for July. Although the bulk of the decline was accounted for by a slide in aircraft orders, there was still an ex-transport decline of 0.6% for the month which was another setback for the economy. US bond yields held relatively firm on expectations that the Fed would still taper in September even if the reduction in bond purchases is lower than expected previously.

Risk conditions deteriorated again in Asian trading on Tuesday as regional equity markets were subjected to renewed selling pressure. There was fresh selling pressure on currencies such as the Indian rupee which dipped to fresh record lows against the dollar.

Tensions also increased surrounding the Syrian situation following an alleged chemical weapons attack and there was speculation over an imminent military strike on Syria which had a further negative impact on risk appetite.

There was defensive demand for the yen as USD/JPY dipped to lows near 97.25 early in the New York session. The Swiss franc also maintained a robust tone as USD/CHF dipped below 0.93 while EUR/CHF tested support below 1.23. The dollar secured some support on defensive grounds, although principal gains were against emerging-market currencies.

To some extent, European currencies were trapped between substantial geo-political pressures. The latest German IFO report was stronger than expected as it pushed to a 16-month high of 107.5 from 106.2 previously, maintaining the run of favourable German data. There were, however, persistent tensions surrounding the Italian government which had a negative impact and Spanish housing data was very weak.

There was choppy EUR/USD trading as initial gains following the IFO report reversed quickly and the pair dipped to lows around 1.3325 before finding fresh support and moving back to near 1.34. A stronger than expected Richmond Fed reading and no real change in the consumer confidence index provided some dollar support as erratic trading conditions persisted.

There were further expectations that Bank of England Governor Carney would look to talk down UK yields and Sterling in a speech later this week and the UK currency also lost support as risk appetite deteriorated. GBP/USD retreated to lows below 1.55 before regaining support as the dollar dipped against the Euro.

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