The latest official Chinese PMI index was stronger than expected on Friday which should have underpinned risk appetite, but the yen initially remained resilient as the Nikkei index weakened again. There was evidence of profit taking on short yen positions following the inability to advance above the 98.50 area. USD/JPY retreated back to below the 98 level as the yen strengthened on the crosses. The pair quickly found buying support and recovered back to 98.30 as US bond yields increased again and the dollar secured wider gains.
The Euro remained under pressure following the sharp decline on Thursday as markets continued to speculate over the possibility and necessity of a more aggressive policy stance from the ECB. A number of prominent investment houses adjusted their forecasts with calls for a cut in benchmark rates as early as next week’s council meeting.
EUR/USD continued to trade with a heavy tone and a break below support in the 1.3555 area triggered another round of selling to near 1.3500. With the CFTC data continuing to suggest that Euro longs could be over-extended, short-term players looked to trigger stops on the downside.
The US economic data was stronger than expected as the ISM manufacturing edged slightly higher to 56.4 for October from 56.2 the previous month. This was the strongest reading since April 2011 and followed on from the very strong Chicago data released on Thursday. There was a strong reading for orders and the only slight disappointing was a dip lower in the employment component.
US bond yields moved higher again following the report as 10-year yields moved above 2.60%. The dollar was able to secure fresh buying support as EUR/USD dipped below the 1.35 level for the first time in over two weeks while USD/CHF moved to the 0.9130 area. USD/JPY was also able to put in a much more convincing performance following the data and moved to highs above 98.80.
The latest UK manufacturing PMI index was close to expectations with at 56.0 for October from a revised 56.3 the previous month. There was a robust reading for export orders which hit a 32-month high, but the data also continued to suggest some levelling-out in the growth profile.
With the data not providing any major impetus, technical considerations dominated for much if the day. GBP/USD continued to test support near the 1.6000 level and a corrective recovery in EUR/GBP helped trigger stop-loss selling and pushed GBP/USD to lows below 1.5950 as the dollar continued to advance against European currencies.