The dollar was unable to gain any traction in Asian trading on Friday with the familiar pattern of weakness followed by very limited correction and then fresh selling pressure.
The Nikkei index was also weak during Friday’s Tokyo session which curbed the potential for yen selling as the Japanese currency secured defensive support. The Chinese consumer inflation data was marginally higher than expected which did not have a major impact. USD/JPY stalled below 102.50 and retreated to lows near 101.50.
The Euro-zone growth data for the fourth quarter was marginally stronger than expected with a 0.3% GDP gain for the fourth quarter from 0.1% previously. There was a stronger than expected reading for Germany which continued to lead the major economies. A 0.1% gain for Italy, the first expansion since the first quarter of 2011, provided some marginal relief as the Italian Prime Minister tendered his resignation.
The stronger than expected German data pushed EUR/USD higher with a move above the 1.37 level and markets were then engaged in a tough battle throughout the European session. Funds continued to push the unit higher in an attempt to break key resistance levels. There were reports of strong offers in place above 1.37 with additional potential supply from Asian sovereign interest.
The US economic data was mixed with a weak reading for industrial production and capacity use while there was a slightly stronger than expected reading for the University of Michigan consumer confidence index. Markets are still expecting the Federal Reserve to push ahead with measured tapering, but confidence has been dented by the recent run of generally disappointing data even if there is an important adverse-weather impact.
Positioning was an important issue during the New York session on Friday with EUR/USD edging lower and back through 1.37 before again meeting significant buying support.
Sterling maintained the extremely strong run seen over the past few days with corrections again floundering very quickly as retail shorts were forced to cover their positions. There was a test of resistance around 1.67 in early Europe and, with only very limited corrections, a fresh surge higher to fresh 33-month highs above 1.6730 in New York as EUR/GBP dipped test the 0.8180 support area.