The latest Japanese Tankan business confidence index was slightly stronger than expected at a five-year high of 16 for the latest quarter from 12 previously which provided some yen support on Monday. The latest Chinese HSBC PMI index was weaker than expected at 50.5 which curbed risk appetite and also triggered further profit taking on short yen positions as USD/JPY retreated to lows around 102.65.
Speculative traders continue to run very aggressive yen shorts in the latest CFTC data with which will maintain the potential for a sharper yen correction stronger, especially with year-end positioning coming into effect as liquidity declines.
There was no fresh test of EUR/USD support levels in Asia or European trading with the pair initially consolidating around the 1.3750 level. There were mixed reading for the Euro-zone PMI data with a stronger than expected reading for manufacturing and a slightly weaker than expected services-sector reading. There was a sharp decline for both French readings, maintaining a high degree of unease surrounding the French economy.
There was further speculation over capital repatriation within the European banking sector, especially with the forthcoming ECB stress tests and this had a significant impact in underpinning the Euro. There was a solid Euro-zone trade surplus according to the latest data and EUR/USD pushed higher during the morning session. Following the failed test of support, traders reversed course and looked to test resistance in the 1.38 region and there was a peak just below this level as Asian sovereign interest continued to defend option positions.
The latest US New York PMI index was slightly weaker than expected, but did register a recovery from -2.2 the previous month. There was a stronger than expected reading for industrial production and a robust reading for the latest manufacturing PMI index which helped underpin US sentiment.
In testimony to the European parliament, ECB President Draghi stated that an exit from a loose monetary policy was still very distant. In this context, there was a fresh retreat in EUR/USD to the 1.3555 area as players took profits on long positions.
The dollar still struggled to gain any significant traction ahead of the Federal Reserve meeting which starts on Tuesday. EUR/USD continued to find solid support on dips with a move back to 1.3775 later in New York as USD/JPY again dipped below the 103 level.
EUR/GBP hit resistance close to the 200-day moving average at 0.8455 which stemmed the immediate advance and GBP/USD was able to regain the 1.63 level.