FX Market Summary 09-12-2013: Dollar remains on the defensive

The Euro-zone economic data was generally weaker than expected with a 1.5% decline in industrial production for the region as a whole and a 1.1% output slide in Italy which reinforced a lack of confidence in the Italian outlook. After hitting resistance close to 1.3325, the Euro edged back towards 1.3280 ahead of the US open as generally narrow ranges dominated.

The US jobless claims data was stronger than expected with initial claims falling to 292,000 in the latest week from 323,000 previously and this was the lowest reading since August 2006. The dollar gained initial strength from the report as it bolstered expectations both of a firmer US economy and Fed tapering next week. EUR/USD dipped to near 1.3250, but there was again no follow-through dollar buying and this has been a notable feature over the past few sessions. The US currency quickly surrendered its gains with EUR/USD moving back above the 1.33 level as USD/CHF dipped to below 0.93.

The dollar was also unable to make any fresh headway against the yen and, after a brief spike higher following the US data, there was a fresh decline to test support in the 99.10 region. Risk conditions were slightly more cautious with an easing of recent selling pressure on the yen and Swiss franc.

There was extensive testimony from Bank of England officials to the Treasury Select committee over the latest inflation report. Governor Carney and other MPC members insisted that the inflation target had not been dropped while also continuing to pledge that there would be no increase interest rates or withdrawal of quantitative easing until the unemployment rate had fallen to at least 7.0%.

Carney was wary over the economic prospects, warning over the risk of a false dawn. He also stated that he was more concerned with keeping expectations of short-term interest rates down rather than worrying over the rise in long-term rates. Sterling edged lower at times, but the overall complacency over higher bond yields and general absence of dovish rhetoric helped push GBP/USD back above the 1.58 level later in the US session.

The latest Australian labour-market data was weaker than expected with an increase in unemployment to 5.8% from 5.7% while there was a decline in employment of over 10,000 for August. From highs above 0.93, AUD/USD reversed sharply and retreated to lows below 0.9250 before finding fresh buying support.

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