FX Market Summary 03-05-2014: Data Disappointments Undermine Dollar

Risk appetite continued to stabilise in Asia on Wednesday with USD/JPY holding above 102.0. The Euro-zone PMI services-sector data was slightly stronger than expected with a final February reading of 52.6 from a flash 51.7, the only major disappointment again being the French performance. The Euro was unable to gain any traction and EUR/USD dipped to lows near 1.3700.

The UK PMI services-sector data was close to expectations with a reading of 58.2 for February from 58.3 the previous month, maintaining the recent trend of slight deceleration in business surveys. The data overall this week will maintain expectations that momentum could slow, but there will still be a solid first-quarter expansion. The currency impact was limited with GBP/USD initially moving lower before finding solid buying support. With Euro selling on the crosses, GBP/USD made a show above 1.67 ahead of the New York open.

The US ADP employment data was weaker than expected with an increase in private-sector jobs of 139,000 for February. There was also a sharp downward revision to January’s data to 127,000 from 175,000 previously.

There was a similar situation with the latest ISM non-manufacturing survey with a decline to 51.6 for February from 54.0 previously. A sharp drop in the employment index caused concern, but it was again difficult to isolate potential weather-related vulnerability. Data releases as a whole certainly did not provide any direct dollar support as growth doubts increased again and the US currency weakened immediately after each release.

There was an important sense of caution ahead of Thursday’s ECB policy meeting and press conference with uncertainty over policy action. There was further speculation that the ECB would end sterilisation of SMP bond purchases which would boost excess liquidity. There were differing estimates of the potential Euro impact of such a move and also some calls for additional policy measures.

In this environment, EUR/USD again struggled to sustain buying support and re-tested support levels where solid demand emerged once again with a notable lack of commitment. EUR/USD consolidated above 1.37 while GBP/USD continued to test resistance above 1.6700. Weaker US data helped protect the yen from additional selling as USD/JPY stalled just above 102.50.

There were no surprises from the Bank of Canada policy decision with interest rates left at 1.0%. The central bank issued a generally cautious statement, but USD/CAD was unable to break above 1.1100 and quickly retreated back to the 1.1050 area as there were no currency references by the bank.

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