FX Market Summary 08-01-2014: Dollar Hit By Profit Taking

Friday’s economic data was not strong enough to trigger further dollar buying with the currency subjected to profit taking after a strong week.

Equity markets generally remained on the defensive following sharp Wall Street losses overnight and risk conditions overall were fragile. There were mixed Chinese PMI readings with a stronger than expected official release offset by a downward revision to the HSBC number. The dollar overall proved resilient with USD/JPY support near 102.75 even though hostile conditions prevented a fresh attack on resistance above 103.00.

European trading conditions were generally subdued with the inevitable mood of caution ahead of Friday’s payrolls data due early in the US session. EUR/USD was able to resist a further test of support in the 1.3370 area with a reluctance to extend positions.

A notable exception to this calm was Sterling which was subjected to renewed selling pressure. The latest UK PMI manufacturing release was weaker than expected with a decline to 55.4 for July from a revised 57.2 the previous month and the lowest level for 12 months. GBP/USD was hit hard again with fresh seven-week lows around 1.6830 as EUR/GBP moved above 0.7950 on diminishing expectations of a near-term Bank of England rate hike.

The headline US non-farm employment increase was slightly below 230,000 expectations at 209,000 for July and unemployment ticked higher to 6.2% from 6.1%. There was an upward revision to June’s data and this was still the sixth successive monthly gain above 200,000. Underlying elements were firm with a slightly higher increase in wages which helped contain any negative impact.

The dollar initially spiked weaker before regaining ground as US yields recovered as EUR/USD dipped to 1.3385 from 1.3430. Players were generally holding dollar longs after a strong week for the US currency and there was pressure for profit taking as bears failed to hold EUR/USD below 1.3400.

US ISM manufacturing data was stronger than expected at 57.1 for July from 55.3 and there was a further increase in the prices component which will maintain underlying pressure for a more hawkish Fed. With markets struggling to sell the dollar on fundamental grounds, EUR/USD consolidated above the 1.3400 level as USD/JPY also fluctuated around 102.70. GBP/USD was able to secure a partial retracement, but still traded below the 1.6850 level into the European close.

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