FX Market Summary 12-03-2013: Yen Shorts Face Correction

There were further expectations that the Bank of Japan would consider additional policy easing during 2014 to maintain pressure against deflation. This continued to have a negative underlying yen impact as funds looked for fresh selling opportunities.

The latest data recorded a further increase in net short speculative yen positions to the highest level for over six years. Initially, negative yen sentiment still dominated and USD/JPY pushed to fresh six-month highs near 103.40 as EUR/JPY approached the key 140.0 level.

Failure here, prompted aggressive profit taking on EUR/JPY positions which triggered selling pressure on USD/JPY as Nikkei futures also fell sharply. With stop-loss yen buying in evidence once the pair dipped below 103, the pair dipped to lows below 102.50 ahead of the US open.

The Reserve Bank of Australia left interest rates on hold at 2.50% following the latest policy meeting while there were further warnings over an over-valued currency. These remarks initially pushed AUD/USD to lows just above 0.9050 before a fresh round of short covering and move back above 0.91 with falling gold prices capping the recovery.

The latest CFTC data also recorded a net short speculative Euro position for the first time since late July and this will make it more difficult for the dollar to secure further gains against the Euro. The Euro also secured a boost from a better than expected Spanish unemployment report and managed to push above the 1.3550 level during the European session with a peak around 1.3590.

There was a lull in US economic data releases ahead of important employment and ISM data on Wednesday, followed by the pivotal non-farm payrolls report on Friday. The lack of data tended to restrain activity in New York with narrow ranges, especially with the ECB policy meeting on Thursday.

The latest UK data was again stronger than expected with the construction PMI index rising to a fresh six-year high of 62.6 for November from 59.4 previously with all sectors registering strong demand for the month. The data galvanised optimism surrounding growth prospects and supported Sterling. GBP/USD was able to regain the 1.64 level with a high at 1.6440 before encountering fresh selling pressure while EUR/GBP found support on approach to 0.8250.

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