The latest CFTC positioning data recorded a further small increase in the net short dollar position which should offer some protection against further aggressive US currency selling, especially with continuing net long Euro position. Narrow ranges initially persisted in Asia on Monday with the Euro drifting lower after hitting resistance on approach to the 1.3850 area with lows near 1.3815.
There was a significant reversal early in Europe on Monday with moves dominated by M&A activity with dealers also desperate for any justification to try and break recent narrow ranges.
There were reports that US drugs giant Pfizer was considering a hostile bid for UK-based Astra-Zeneca. The US company has been showing persistent interest in a merger deal between the two companies and upped the stakes with a non-binding £58.8bn offer for the company. Such a deal would tend to boost capital flows into the UK and pushed Sterling stronger. From lows near 1.6780, GBP/USD pushed sharply higher to a peak above 1.6850 as it attempted to break longer-term resistance levels.
Dollar selling against Sterling spilled over into the other main currency pairs with the Euro and Swiss franc also gaining significant support. Events surrounding French company Alstom were also important as a potential merger with GE was hijacked by interest from Siemens. EUR/USD initially moved higher with further gains triggered once 1.3860 resistance broke and a peak just below 1.3880.
European trading then reverted to very lacklustre ranges with further mildly dovish rhetoric from ECB officials failing to have any significant effect as markets waited for key events later this week.
The latest US pending home sales data was stronger than expected with a 3.4% gain for March which was the first monthly increase for since mid 2013. The latest Dallas Fed manufacturing index was also significantly stronger than expected which helped underpin the dollar. EUR/USD was unable to hold its best levels and dipped back towards the 1.3850 area as GBP/USD also moved lower.
The dollar gained support against the yen on yield grounds and underlying confidence in Japanese fundamentals remained weak. There was still a reluctance to sell the yen aggressively, especially given weak liquidity during Golden Week holidays, but USD/JPY was able to edge higher towards the 102.50 level.