As has been the case frequently over the past month, the Australian dollar was an important focus in Asian trading on Wednesday. An inability to break resistance, coupled with a further decline in gold prices and a weaker than expected GDP report, pushed AUD/USD sharply weaker. Once 0.9050 support failed, there was further selling to lows just above 0.9000, the weakest level since early September.
The dollar initially remained under pressure against the yen, but USD/JPY found strong support on dips to just below the 102 level and rallied into the early European session.
The final Euro-zone PMI services data recorded a marginal improvement from the flash reading. There were very important regional differences with Germany’s data revised higher and Spain recording a figure above 50 while there were deteriorations to five-month lows for both France and Italy. Although this divergence in trends continued to unsettle the Euro with expectations of increased political stresses, EUR/USD held firm above 1.3570.
The latest US ADP employment data was stronger than expected with an estimated increase in private-sector jobs of 215,000 for November and there was also a strong upward revision to 184,000 for October from 130,000. Given the Federal Reserve’s strong focus on the labour market, a firm ADP release boosted optimism both in Friday’s payroll data and the potential for tapering of Fed bond purchases at the December meeting, two important and generally bullish dollar factors.
The US trade data was broadly in line with expectations as a robust export release provided some underlying dollar support. EUR/USD had briefly tested the 1.3600 level ahead of the US data before falling very sharply to lows around 1.3530.
In a data-packed session, the ISM non-manufacturing data was weaker than expected at 53.9, but potential dollar damage was offset by a strong gain for new home sales with dollar selling quickly dissipating and EUR/USD moved back below 1.3550. USD/JPY pushed back to the 102.70 area while USD/CHF rallied to 0.9065 from an early low below 0.9020.
In headline terms, the latest UK PMI data was weaker than expected with a decline in the services index to 60.0 for November from 62.5 the previous month. In response, GBP/USD dipped sharply to lows below 1.6350 immediately after the data. In historic terms, the data was still robust with important strength in new business which should provide further near-term economic support.
Profit taking was a significant influence on short EUR/GBP positions, especially after GBP/USD also failed to hold above the 1.64 level and the pair rallied to highs above 0.83.