FX Market Summary 11-15-2013: Dollar Struggles into the Weekend

Following Fed Vice-Chairman Yellen’s testimony on Thursday, the yen was hampered by generally robust risk appetite on expectations that global central banks would maintain very expansionary monetary policies. There has also been a decline in the VIX volatility index as US equity benchmarks again pushed to record highs which has helped curb demand for the Japanese currency and USD/JPY found support on dips back towards 100.0 with a peak just above 100.40.

There were no major Euro-zone data releases with inflation confirmed at 0.7% for October, maintaining underlying deflation concerns. There was evidence of further tensions within the ECB  as Germany continued to voice unease over the low level of interest rates. There was also fresh media speculation over a north/south rift as political tensions increased.

The latest raft of US data releases was weaker than expected with industrial production  declining by 0.1% for October compared with consensus expectations of a 0.1% gain while capacity use edged lower to 78.1% from 78.3%. There was also a weaker than expected New York Empire PMI reading of -2.2 for November from 1.5 previously.

The data overall maintained expectations of a very expansionary Fed monetary policy to help underpin the economy, especially with Yellen maintaining a generally very dovish tone in congressional testimony on Thursday. The dollar ‘s firmer tone over the past week has been built on renewed speculation of a possible December tapering of bond purchases. Yellen’s comments have certainly not bolstered the case for an early move which undermined the dollar.

EUR/USD was able to find support above the 1.34 level and pushed significantly higher following the US economic data with a fresh test of resistance around 1.3500, but resistance levels appeared to be holding into the European close.

Underlying global monetary policy expectations were still broadly supportive of Sterling with the Federal Reserve maintaining a dovish tone while there was speculation that the ECB would be forced to take more aggressive policy action. In this environment, EUR/GBP retreated to the 0.8360 area while GBP/USD tested resistance around 1.6120 during the New York session before being subjected to profit taking.

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