According to the latest CFTC positioning data there was a further increase in speculative yen shorts to the highest level since July 2007 which will maintain the potential for a sharp correction, especially when there is a lack of liquidity. Tokyo markets were closed on Tuesday which further dampened activity and USD/JPY was unable to move above the 105.40 resistance point as it drifted lower to the 105 area.
Sterling sparked sharply higher early in the European session on Tuesday with evidence of UK currency demand into the morning fix and optimism surrounding the economy overcoming any month-end related selling pressures. GBP/USD pushed back above the 1.65 level with a peak just shy of 1.6550 while EUR/GBP retreated sharply to the 0.8330 area from 0.8370 during the Asian session.
European market action was generally very subdued ahead of the New Year holiday with last-minute position adjustment and investment flows tending to dominate action. EUR/USD was unable to move above 1.3800, sapped in part by vulnerability on the main crosses, and consolidated below this resistance area.
As far as the US economic data releases were concerned, there was a stronger than expected consumer confidence reading of 78.1 for November from a revised 72.0 previously, the highest reading for three month, while there was a 13.6% annual increase in the Case-Shiller house-price index. There was a slightly disappointing Chicago PMI reading at 59.1 from 63.0, although this was still a solid reading. EUR/USD drifted slightly lower following the data releases, while USD/JPY struggled to gain any fresh support.
Gold prices dipped lower early in the session, testing 2013 lows, but there was a sharp correction after futures found support in the key 1180 per ounce area. A rally in gold prices later in the session helped underpin commodity currencies as AUD/USD moved to near 0.8950 while USD/CAD retreated for the second successive day with a low near 1.0620.