FX Market Summary 10-18-2013: Dollar stays under pressure

Markets were generally devoid of major fresh incentives during the Asian session on Friday. The Chinese third-quarter GDP data was in line with expectations at 7.8% from 7.5% previously which provided some boost to risk appetite and also underpinned the Australian dollar. AUD/USD moved to test resistance above 0.9650 which was the highest level since early June, although this was also a function of wider US vulnerability.

Underlying dollar weakness remained the dominant theme during the European session with a notable feature being the inability of the currency to regain significant ground following sharp losses over the previous 24 hours.

EUR/USD initially held above 1.3650 and pushed to a high just above 1.37 as traders continued to target technical resistance levels and 2013 highs for the Euro.

There were no significant data releases on offer with the dollar still being undermined by a lack of confidence in the fundamentals following the unsatisfactory debt resolution. There were also expectations that the Federal Reserve would delay a tapering of bond purchases until beyond the end of 2013. Given the complexities of a changing Fed Chair as Yellen takes over early next year, expectations for bond tapering tended to be pushed back even further which dented the dollar.

There was a slightly more reserved tone during New York trading with position adjustment an inevitable feature late in the week. There was also caution given that the stream of delayed US economic data releases will come on stream next week. In particular, the pivotal employment report will now be issued on Tuesday. The dollar was still unable to gain any significant relief at the European close.

Sterling was able to maintain the momentum built-up since the middle of the week when it survived a test of downside support. There was further speculation that the Bank of England could be forced tighten policy sooner than it would like, especially if inflation expectations start to increase significantly. Bank member Dale clarified his position in stating that an interest rate increase was very unlikely during 2014.

GBP/USD pushed to highs above 1.62 before drifting back to below this level as markets pondered the possibility of a double-top being formed following the 1.6250 peak early in October.

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