The yen gained initial support on Monday from a weaker than expected Chinese PMI index which fell to an eight-month low of 48.1, but failed to sustain the gains and the dollar gradually rallied later in the Asian session on Monday as the Nikkei index rallied. There were further expectations that the Bank of Japan could move to further quantitative easing within the next few months as USD/JPY tested resistance in the 102.50 area. The Australian dollar also proved to be resilient as AUD/USD rallied from lows close to 0.9050 following the Chinese data back to the 0.9100 region.
The latest CFTC positioning data recorded a further increase in net long speculative Euro positions and a sharp decline in net dollar longs which will make it difficult for the Euro to extend an recovery and created caution over dollar selling. EUR/USD was initially confined to narrow ranges around the 1.3800 level into early European trading and ahead of key PMI releases.
The Euro was boosted by much stronger than expected French PMI data with the composite index finally moving back above the 50 level and registering a 31-month high. EUR/USD spiked to the 1.3820 area as short-term players looked to take out stops.
Momentum was reversed quickly by weaker than expected German data and the Euro-zone release as a whole was close to expectations. There were generally downbeat comments from the Bank of Finland over growth prospects and comments that ECB interest rates were likely to stay low for a longer period. In response, there was a renewed EUR/USD decline to the 1.3760 area as support levels were probed without any immediate break.
GBP/USD was initially subjected to fresh selling pressure and retreated to lows at 1.6460 before finding relief and attempting to break back above short-term resistance around 1.6520. Sterling drifted did show some greater resilience into New York trading before edging lower again as longer-term technical indicators turned more bearish.
Demand for defensive assets was generally weaker in Europe with the Swiss franc underperforming on the Euro cross with a move to the 1.22 area as USD/CHF looked to break above resistance levels. The tone was more cautious in New York with the franc regaining some ground while USD/JPY retreated to lows below 102.20 as Wall Street opened significantly lower.