The Euro edged slightly lower on Wednesday with caution a key element ahead of substantial event risk over the next two days. Risk appetite was generally firm during Asian trading which curbed defensive demand for the Japanese currency, especially with US equity markets again challenging record highs. In this context, there was further speculation that the Japanese currency would be used as a funding unit if conditions remained more favourable. EUR/JPY challenged resistance above 143.0 while USD/JPY probed resistance around 104.0.
The UK construction PMI index was marginally weaker than expected at 62.5 for March from 62.6 previously, but the sector has been in strong expansion for close to 12 months. Underlying optimism in the survey was also at the highest level for 17 years and Sterling was broadly resilient following the data. Technical factors were significant as EUR/GBP hit resistance close to the 100-day moving average above 0.83 which also provided a cushion to GBP/USD as it held above the 1.6600 level.
EUR/USD looked to probe resistance levels above 1.38 in early Europe, but attempted moves higher quickly met resistance with narrow ranges dominating. There were reports from ECB sources that there was no consensus surrounding Thursday’s council meeting with an intense discussion likely to be in prospect. The comments increased speculation that the ECB could take some additional action and pushed the Euro slightly lower, although movement was limited.
The latest US ADP employment report was close to expectations with a 192,000 gain in jobs for March, but there was a significant upward revision to February to 178,000 from 139,000 which maintained some degree of optimism surrounding trends, especially with monthly car sales higher than expected. The dollar was able to gain only limited initial support as narrow ranges continued to dominate.
US benchmark 10-year Treasury bond yields moved higher during the New York session to the 2.80% level which provided additional dollar support and, with Euro buyers extremely cautious into Thursday’s ECB meeting, EUR/USD edged lower to the 1.3770 area. USD/JPY was held below 104.00 despite favourable yield trends with a reluctance to push the pair higher at this stage.