Markets had a solid run of data to welcome the first trading day of 2014 and volatility levels increased from the tentative conditions seen before the New-Year break with a notable shift in pattern also in evidence.
The Euro-zone final PMI manufacturing data as a whole was unchanged from the flash reading at 52.7. Within the headline data, there was further disappointment for France while there were stronger than expected readings for Italy and Spain which helped boost confidence in these economies and triggered a sharp fall in peripheral bond yields.
There had been evidence of capital repatriation flows into the Euro ahead of the year-end and there were also some expectations that there would be reduced Euro demand at the start of 2014 as this buying pressure subsided. IN addition, the Euro was unsettled by US 10-year bond yields being above the 3.0% level.
EUR/USD was unable to make any impression on resistance levels and retreated towards the 1.3700 area during the European session. A break below this level triggered stop-loss selling and the pair retreated to lows below 1.3650 before finding some degree of support. European currencies in general were under pressure as USD/CHF managed to retake the 0.90 level for the first time in 2 weeks.
The US jobless claims data was slightly better than expected with a decline to 339,000 in the latest reporting week from a revised 341,000 previously. There was also a slightly better than expected reading for the ISM manufacturing index at 57.0 from 57.3 previously. The data helped maintain a more positive tone towards the US economic outlook.
The dollar was unable to gain further traction despite the solid data as US Treasury bond yields backed away from their highest levels. USD/JPY was unable to break above significant resistance in the 105.40 area and retreated back below 105.00 with profit taking also an important element.
The UK PMI manufacturing data was slightly weaker than expected with a decline to 57.3 for December from a revised 58.1 previously which raised some concerns that momentum within the economy could slow.
Technical and positioning factors were more important for now with GBP/USD initially retreating following an inability to break resistance in the 1.6600 area. There had also been an important element of window-dressing and year-end position adjustment which tended to unwind during Thursday and GBP/USD slumped to lows near 1.6400. EUR/GBP found support in the 0.8270 area and rallied to 0.8300 in choppy trading conditions.