FX Market Summary 04-09-2014: Dollar Stays Under Pressure

There were mixed trends in Asian trading Wednesday with regional equity markets firm on generally improved confidence surrounding emerging markets while the Nikkei index was weaker. Gains for regional stocks curbed defensive demand for the yen and, in this context, USD/JPY was able to regain the 102 level after recovering from 10-day lows near 101.50.

AUD/USD maintained a robust tone and pushed to 5-month highs just below 0.9390 on renewed enthusiasm for carry trades before being subjected to significant profit taking.

Although the German trade data suggested a lack of momentum for exports, the overall impact was very limited. Markets were focussed more on the impending return of Greece to international capital markets with a scheduled 5-year bond offering due on Thursday which will be seen as closing an important chapter surrounding the Euro-zone financial crisis.

The dollar remained firmly on the defensive during the European session with the trade-weighted index mired at three-week lows below the 80 level. The familiar pattern prevailed with an inability to stage any kind of meaningful recovery from Tuesday’s significant losses.

Narrow ranges were still an important feature with a lack of fresh incentives as markets pondered the potential for the ECB to step-up its quantitative easing rhetoric. With no further hints over a move for now, EUR/USD found support around 1.3780 and pushed higher to re-test resistance above the 1.3800 area. There was also caution ahead of the Fed minutes due later in New York.

The latest UK trade data was marginally better than expected with a goods deficit of £9.1bn for February from a revised £9.5bn previously, but there will be concerns surrounding underlying exports trends. The latest data on shop prices registered a 1.7% annual decline which was the weakest reading since 2006. The lack of inflationary pressure within retail will provide comfort to the Bank of England over the ability to resist hiking interest rates.

Sterling was influenced more by momentum and technical factors following sharp GBP/USD gains seen over the previous 24 hours with markets looking to take out resistance in the 1.6750 area.

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