FX Market Summary 07-04-2014: Consolidation Dominates

Consolidation was inevitably the dominate focus on Friday following the fundamentals events on Thursday with potential activity dampened even further by the US Independence Day holiday.

Asian equity markets advanced to 3-year highs on Friday which tended to curb yen buying support while US yields were at a 10-month high. In this context, there were was some disappointment that the dollar was unable to make further headway with USD/JPY unable to break 102.20 and edging back to the 102.00 area. The lack of upward progress will increase the risk of further position adjustment on stale long positions.

The Euro was generally on the defensive with expectations that the ECB would maintain a very loose monetary policy over the next few months. In contrast, there were expectations of a more aggressive US monetary policy following the stronger than expected payrolls report on Thursday. Yields shifted in the US currency’s favour and markets were expecting a further divergence in the dollar’s favour over the next few months.

Markets were still struggling to turn this yield support into more decisive greenback support. Bulls were more restrained given that previous expectations of gains proved elusive. There were also fears that the Fed and Chair Yellen in particular would maintain a dovish policy stance.

EUR/USD edged lower towards the key 1.3580 support area as narrow ranges prevailed. GBP/USD pushed higher early in the European session, briefly touching the 1.7180 level before being pushed lower by a wave of profit taking. USD/JPY consolidated just above the 102.00 level.

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