FX Market Summary 21-02-2014: Sterling Resilient Again

The headline UK retail sales data was weaker than expected with a 1.5% decline for January compared with a 0.9% expected fall, but this followed the extremely strong reading for December and a substantial reversal was inevitable for the month. GBP/USD retreated to the 1.6610 area immediately following the release, but found strong buying support at lower levels and quickly moved back above 1.6650.

The latest UK government borrowing data was also released and there was a smaller than expected surplus for the key month of January which is always boosted by corporate tax payments.

The Euro had been damaged on Thursday by weaker than expected data, especially from France which increased fears over a potential fresh economic downturn. As has been the case throughout the past few weeks, the dollar found it very difficult to capitalise on initial Euro weakness. Retail speculators remain very anxious to short EUR/USD and any failure to extend losses triggers rapid short-covering in the pair.

Friday’s trading was no exception and after another push lower failed to make any impression on support levels, there was a EUR/USD rally in New York with an initial move back to the 1.3730 area. The US existing home sales data was weaker than expected at an annual rate of 4.62mn for January from 4.87mn previously. There was some impact from hostile weather conditions, although the sales decline was widespread in geographical terms. Median prices rose 10.7% over the year which should lessen deflationary fears, but EUR/USD moved to test resistance in the 1.3750 area as GBP/USD tested overhead resistance above 1.67.

The dollar did prove broadly resilient on Friday and USD/JPY tested resistance levels above 102.50 with a peak in the 102.80 area as EUR/JPY tested resistance above 141.0.

The G20 meeting will be watched closely over the weekend and evidence of economic and political stresses within emerging markets would tend to undermine risk appetite and provide some net yen support.

The Canadian data had a very mixed tone with as core and headline inflation readings came in above expectations while there were much weaker than expected readings for both retail sales measures. USD/CAD hit resistance on approach to the 1.12 level and retreated to 1.1140 with short-term indicators very over-bought following the surge since mid week.

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