FX Market Summary 03-11-2014: Narrow Ranges Prevail

There were calmer market conditions in Asia on Tuesday as risk conditions stabilised and AUD/USD managed to find support above 0.9000 despite further vulnerability in industrial commodity prices.

As expected, the Bank of Japan left policy on hold following the latest policy meeting with no further measures to boost quantitative easing. The central bank was slightly more optimistic surrounding the economy, notably on capital spending. There are still important uncertainties over retail spending given the sales tax increase in April which will keep the central bank on high alert.

Risk conditions held relatively stable as markets waited for further evidence on Chinese developments. USD/JPY was able to hold above the 103 level while hitting resistance close to 103.50 with conviction over aggressive yen selling still lacking at this stage.

EUR/USD had a slightly defensive tone during the European session with an on-going limited correction from a failure to close above key resistance levels late last week. Downward pressure on the pair was compounded by comments from ECB member Constancio who stated that the markets had mis-interpreted the ECB a little with the bank still open to further measures if required. There was a retreat to lows just above 1.3830 with bears still struggling to exert any sustained pressure as the pair rebounded to just above 1.3850.

A slightly weaker than expected US job-openings release did not have a significant impact with markets still expecting a further tapering of bond purchases at March’s FOMC meeting. There was further EUR/USD consolidation just above 1.3850 as USD/JPY held above 103.

Sterling again had a fragile tone during the European session. As far as data releases were concerned, the impact was limited with a weaker than expected industrial production gain for January offset by a higher figure for manufacturing.

The main focus was Bank of England testimony to the Treasury Select Committee on last month’s inflation report. Governor Carney, overall, shed little in the way of fresh light on likely monetary policy developments with comments that the economy is not close to overheating. In that context, there were still expectations that the central bank would hold-off from any near-term tightening.

GBP/USD was unable to regain the 1.6650 level and retreated to test support just below 1.66 ahead of the New York open before correcting to 1.6630 as EUR/GBP hit resistance close to 0.8350.

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