FX Market Summary 05-12-2014: Yen Moves Weaker

Markets struggled for momentum during Monday with consolidation the general theme after sharp Euro losses at the end of last week with the Japanese yen tending to lose ground on domestic and international grounds.

The latest seasonally-adjusted Japanese current account data was weaker than expected with a seasonally-adjusted deficit of JPY-0.78trn from JPY-0.04trn previously which maintained a lack of confidence in the underlying Japanese fundamentals and expectations of longer-term yen vulnerability. USD/JPY moved to the 102 area during the Asian session even with the Nikkei index generally on the defensive.

The Australian dollar was able to take advantage of interest in carry trades and a rise in copper prices to a two-month high with AUD/USD probing resistance levels above 0.9350 counteresd by expectations of strong selling interest on approach to 0.9400.

The latest CFTC data registered a significant increase in short dollar positions. Although there were no major shifts in positioning, the overall stance should continue to offer some degree of dollar protection. EUR/USD initially consolidated just above 1.3750 with sellers facing temporary exhaustion.

ECB comments remained a potentially very important focus for markets following Draghi’s comments last week which lit the fuse surrounding fresh action at June’s policy meeting. Council member Constancio declined to speculate on the June outcome while fellow member Nowotny was slightly more forthcoming with remarks that a cut in benchmark interest rates might not be sufficient.

Slightly surprisingly, these comments did not cause a significant Euro ripple with EUR/USD continuing to consolidate in a tight 1.3750-1.3780 range. USD/JPY probed resistance above 102, especially after Wall Street opened higher with markets also taking a generally bullish outlook on US economic prospects which helped bolster US yield support.

Sterling was resilient during the day with expectations of strong labour-market data this Wednesday helping to keep potential sellers at bay. GBP/USD was able to hold above 1.6850 after finding support below this level on Friday while EUR/GBP dipped lower to test 2014 lows below the 0.8150 level.

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