The Euro has remained on the defensive over the past 24 hours, woth a fragile hold on key support levels. Hopes that the US Federal Reserve could maintain an expansionary policy without risking higher inflation had a significant impact in boosting equity markets following the latest FOMC minutes which curbed defensive yen demand. The latest Japanese capital-account data recorded a sharp increase in flows out of Japan which will tend to sap yen support with some evidence of a shift in major funds.
Risk conditions also improved during the Asian session Thursday with a stronger than expected HSBC China PMI reading which pushed to a five-month high just below the 50 level. USD/JPY rallied to highs above 101.70 without being convincing at higher levels.
The Chinese data also had a significant impact on the Australian dollar as AUD/USD rallied sharply from 0.9220 lows to the 0.9270 area before being subjected to renewed selling interest.
As has been the pattern in recent months, there were mixed Euro-zone flash PMI readings. The French data was again disappointing with the manufacturing and services-sector indices both retreating back below the pivotal 50 level and registering five-month lows. A weaker than expected German manufacturing release was offset by a significantly stronger services-sector reading.
There were some further doubts surrounding Euro-zone peripheral bonds, especially with political risk premiums liable to increase ahead of European Parliament election results this Sunday with protest parties likely to take increasing support.
The UK second-quarter GDP data was unrevised from the flash estimate at 0.8% which proved a slight disappointment to Sterling bulls. There was some improvement in the investment data while the latest government borrowing data was much weaker than expected. GBP/USD was unable to hold above the 1.6900 level and dipped back towards 1.6850 with evidence of profit taking.
The latest US jobless claims data did not have a major impact with an increase to 326,000 in the latest week and EUR/USD tended to drift weaker after failing to break above the 1.3700 level. There was a fresh move to the 1.3650 area as players also looked to the crucial 200-day moving average support just below at 1.3636.