FX Market Summary 11-29-2013: Narrow Ranges Dominate Trading

The underlying theme has been little changed with the dollar firm against the yen and commodity currencies while continuing to struggle against the main European currencies.

Core Japanese consumer prices rose 0.9% in the year to November, the highest rate since November 2008 which suggested the Bank of Japan was making headway against deflation. The industrial production data was weaker than expected with a 0.5% increase while household spending was weaker than expected. There will be fears that measures to boost inflation are undermining consumer purchasing power and hurting demand.

The yen initially remained under heavy selling in Asia on Friday with USD/JPY moving above 102.50. There was some pressure for consolidation given extreme positioning and caution running into the month-end with a limited recovery early in Europe. Similarly, EUR/JPY was vulnerable to profit taking and helped drag EUR/USD back from 1.3620 highs.

The latest Euro-zone flash inflation reading was slightly stronger than expected with a 0.9% rate for November from 0.7% previously. This again had some impact in dampening expectations of further ECB policy action and provided some net Euro support. The Euro-zone unemployment data was also slightly better than expected, but both the German retail sales and French consumer spending releases were weaker than expected, maintaining underlying growth concerns.

The UK lending data was slightly weaker than expected with an increase of £1.7bn for October from £2.2bn previously and mortgage approvals also fell slightly short of expectations. This helped offset a firm Nationwide house-price reading and dampened Sterling enthusiasm slightly. GBP/USD was also vulnerable to a correction after failing to break above the 1.6380 2013-high resistance level, but losses were contained and there was still a very solid gain for the week as whole.

Trading conditions were generally lacklustre with US conditions thin on Black Friday and narrow ranges generally prevailed, especially with a reluctance to engage in fresh positions on the last trading day of the month. EUR/USD was confined to narrow ranges generally just above 1.3600 as USD/CHF tested support below 0.9050.

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