FX Market Summary 03-17-2014: Dollar Support Elusive Again

There was still an important element of caution on Monday as Ukraine uncertainties continued to deter aggressive positions. There was some relief that there had been no immediate surge in tensions following Crimea’s vote to leave Ukraine and join the Russian Federation and risk appetite overall was initially slightly stronger.

Equity markets rallied and USD/JPY moved to the 101.85 area while a widening of the Chinese yuan trading band did not have a major impact. There was a rally in commodity currencies with AUD/USD pushing to a peak around 0.9080 after finding support below 0.9000.

European Union Foreign ministers were meeting to debate sanctions on Russia with markets expecting that fears over retaliation would dilute any efforts to take a hard-line stance. US President Obama did warn over the threat of further sanctions.

The latest CFTC speculative positioning data recorded a further increase in long Euro contracts to over 36,000 in the latest week. Although still relatively restrained in historic terms, net positioning will increase the potential for a sharp Euro correction. In this context, any comments from ECB officials would be liable to have a magnified effect.

Final Euro-zone inflation data for February was revised down to 0.7% from a provisional 0.8% which equalled a record low for the data series. There will be increased pressure for an ECB response following the data. EUR/USD hit resistance above 1.3910, but bears were still unable to make any significant impression on the downside as narrow ranges prevailed.

The latest New York Empire PMI reading was slightly weaker than expected at 5.6 for March from 4.5 previously, although attention again tended to be on adverse weather in the Washington region as the expected capital flows data was delayed for 24 hours. The latest industrial production data was stronger than expected with a 0.6% increase for February and capacity use was also slightly higher than expected.

The dollar again failed to gain any significant traction on the data and EUR/USD pushed to highs just short of 1.3950 as traders continued to probe key upside resistance levels while USD/JPY dipped back to 101.60.

Sterling was generally on the defensive during Monday’s trading even though ranges were still relatively contained. There was fresh M&A activity with Vodafone buying Spanish group Ono which will help offset the previous impact of substantial potential capital inflows. GBP/USD retreated to test support near 1.6600 before being rescued again by another bout of wider dollar vulnerability.

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