After being influenced strongly by technical factors and reported barrier interest during Tuesday, price action on Wednesday was driven much more by fundamental factors and major data releases.
The Australian dollar was the first currency to be influenced significantly during the Asian session. After probing important resistance levels near 0.9500, AUD/USD was undermined by a much weaker than expected trade report. The monthly deficit was much worse than expected at AUD1.91bn compared with the consensus AUD0.17bn and there was a huge revision to the previous month’s data with a shortfall of AUD0.78bn. AUD/USD dipped sharply to test support near 0.9450 on fears over weaker Chinese demand.
Risk appetite held relatively steady during Tokyo trading and there was no major yen demand with USD/JPY holding comfortably above the 101.20 area.
The UK Nationwide house-price index registered a 1.0% monthly increase for June and an 11.8% annual increase which maintained underlying Sterling buoyancy. The currency then got a further boost from a stronger than expected construction PMI report. The headline figure strengthened to a four-month high at 62.6 which triggered a fresh spike to 1.6170 for GBP/USD as EUR/GBP tested important support levels near 0.7950.
EUR/USD was again blocked close to the 1.3700 level and drifted lower under the weight of profit taking with no major changes into the New York open as caution prevailed ahead of the first of three big US labour-market reports for the week.
The ADP employment data was much stronger than expected at 281,000 for June from an un-revised 179,000 previously and this was the highest figure for 18 months. With strong auto sales reported overnight, there was increased optimism surrounding both the economy and Friday’s non-farm payroll release. EUR/USD spiked lower to the 1.3650 area following the data as the US currency secured wider support. US 10-year bond yields moved significantly higher to just above the 2.60% level which provided significant support and USD/JPY rallied towards 101.80.
GBP/USD was resilient with losses held to around 1.7150 as the Euro under-performed on the European crosses. AUD/USD remained on the defensive with a retreat to the 0.9430 area.