Major currency pairs struggled for direction on Friday amid expectations that the Summer doldrums were liable to become a permanent feature for EUR/USD. After a nervous session the previous day, equity and bond markets had a calmer fell during the European session. There was relief that equity selling did not accelerate during the Asian session with players relatively sanguine over the Portuguese situation with only limited contagion fears.
There was still an important mood of uncertainty which discouraged aggressive action in carry trades with some fears over a risk of complacency. USD/JPY held above the 101.00 level without being able to move above 101.50.
GBP/USD initially bounced from support near 1.7120 and looked to probe resistance close to 1.7150. The first attempt at breaking higher was undermined by a weaker than expected construction-output release. A reported 1.2% gain for April was almost reversed in May with a 1.1% decline as government projects declined. Sterling initially regained losses before coming under renewed stress early in New York with a retreat towards 1.7110.
Comments from Kansas City Fed President George were slightly more reserved over growth, but she was uneasy surrounding the inflation outlook and still pointed to the potential for higher interest rates this year. In contrast, Chicago chief Evans maintained his dovish approach with comments that rates may not need to rise until 2016. Markets will look for further guidance from key congressional testimony by Fed Chair Yellen next week.
EUR/USD drew some initial support from an easing of immediate fears surrounding Banco Espirito Santo as Portuguese benchmark bond yields edged lower. There was still significant underlying unease surrounding the Euro-zone banking sector as a whole with concerns that underlying vulnerabilities had not been tackled continuing to stifle Euro support.
EUR/USD failed to move back above 1.3630 and dipped to re-test support below 1.3600 early in the US session. Bears were again unable to take out support levels in the 1.3580 area as trading wound down for the weekend.
The latest Canadian labour-market data was weaker than expected as unemployment increased to 7.1% from 7.0% previously while there was a decline in unemployment of close to 10,000 for the month. Having dipped to lows around 1.0630, there was sharp reversal in USD/CAD following the data with an attempt to break above the 1.0700 level for the first time in over two weeks.