The latest Japanese data showed some encouragement for the government with a two-year high for the manufacturing PMI index while deflation pressures also eased slightly. The improvement will encourage the Bank of Japan to maintain an ultra-loose monetary policy. There was further underlying dollar support on yield grounds as USD/JPY pushed to challenge resistance levels above 99.0 for the first time since early June.
There were reports in the German press on Friday that the ECB was considering a new bond-purchase plan. This would involve buying bonds in all Euro-zone economies, weighted according to GDP. There was a high degree of scepticism surrounding the reports which were also denied by the ECB. Nevertheless, the bank is under very strong pressure to sanction additional monetary policy easing.
The Euro dipped towards the 1.3030 area on the ECB reports before finding some degree of support and moving back to the key 1.3075 technical resistance area ahead of the New York open.
Trading conditions were volatile with important position adjustment ahead of the weekend and at the end of the second quarter. Short-term players were inevitably reluctant to commit funds aggressively which increased the threat of erratic trading.
The latest Chicago PMI index was weaker than expected with a decline to 51.6 for June from 58.7 previously, although the underlying components were firmer which limited any negative impact on the dollar. There was also a stronger than expected reading for the final University of Michigan consumer confidence index which underpinned sentiment. Fed Governor Stein also suggested that the latest data should not be a deciding factor in determining whether the Fed tapers policy and there were further hints that the Fed will look to scale-back bond purchases in September which helped underpin the dollar.
Technical considerations remained important with the proximity of the 200-day moving average. EUR/USD could not hold this level and also failed to recover the death cross recorded on Thursday when shorter-term moving averages moved below the 200-day average. This helped maintain underlying unease surrounding the Euro and EUR/USD dipped to lows just above 1.3000 before finding some degree of support.
The latest UK data maintained a generally favourable trend with a further 0.3% monthly increase in the Nationwide house-price index for June and there was also solid services-sector expansion.
Sterling struggled to gain any benefit from the data as GBP/USD dipped back to near 1.52 against the dollar and it also lost ground against the Euro. Although the moves were to some extent linked with month-end Sterling selling, there were also concerns that fundamental vulnerability on the balance of payments and weaker yields spreads were having a negative impact.