FX Market Summary 09-09-2013: Dollar still suffering from a hangover

The yen weakened significantly in Asia on Monday with USD/JPY gapping higher. The Nikkei index rallied following the IOC announcement that Tokyo would host the 2020 Olympics which tended to push the yen weaker and USD/JPY gapped high with a peak just above the 100 level. There was also further speculation that the sales tax would be increased which would also intensify pressure for the Bank of Japan’s monetary policy to be expanded further in the medium term.

The dollar in general continued to suffer from a hangover following Friday’s disappointing employment report. There were still expectations that the Fed would look to announce a limited tapering of bond purchases at next week’s FOMC meeting, but the dollar’s momentum had certainly been checked. USD/JPY was unable to hold above the 100 level and dipped lower to test support below 99.50. AUD/USD maintained a firmer tone and broke above the 0.9200 resistance area.

The Euro-zone data remained stronger with the Sentix investor confidence index rising to a two-year high. There were still very important reservations surrounding the Euro-zone economy and expectations that the ECB would look to combat any further rise in money-market rates. Political stresses were also significant with the Italian government still vulnerable to collapse.

The latest CFTC positioning data registered an increase in speculative dollar positions to a one-month high and this will make it difficult for the dollar trade-weighted index to make headway with the threat that stale long positions will be cut. There was, however, still a significant net long Euro position which will tend to stiffen dollar support against the single currency. Negative dollar sentiment was still the dominant feature on Monday as EUR/USD pushed above resistance in the 1.32 area and peaked near 1.3250.

The UK Chancellor was substantially more optimistic surrounding the economy as the government attempted to gain a political advantage ahead of the important UK conference season. Markets were sceptical surrounding the rhetoric, but underlying Sterling sentiment was stronger anyway following the series of upbeat economic surveys and data.

GlaxoSmithKline confirming the sale the sale of its UK drinks operation to Suntory also provided some merger-related support for the UK currency. GBP/USD pushed higher to challenge important resistance levels above the 1.57 level as it took advantage of dollar vulnerability.

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