FX Market Summary 02-18-2014: Dollar Back Under Pressure

The dollar has again struggled over the past 24 hours, unable to secure any sustained respite. As expected, the Bank of Japan held the amount of quantitative easing steady at the latest policy meeting on Tuesday. The bank did, however, expand a policy of providing cheap financing to the corporate sector with the amount doubled to JPY7trn from JPY3.5trn. The move put immediate downward pressure on the yen and selling was compounded by a sharp rise in the Nikkei index which increased by close to 3%. USD/JPY rallied to a peak around 102.70 as the Euro moved above the 140 level.

The latest headline UK consumer inflation data was slightly weaker than expected with a decline in the annual rate to 1.9% for January from 2.0% previously, the first time the rate has been below 2.0% for close to five years. There had been rumours of a weaker release which dragged Sterling down into the data and also cushioned the currency from a further substantial sell-off following the release.

GBP/USD did retreat to near 1.6650 as gilt yields edged lower before finding buying support on dips. Retail positioning remained short which quickly curbed any selling momentum and there was little enthusiasm for aggressive action ahead of Wednesday’s important labour-market report.

EUR/USD found solid support just below the 1.37 level and continued to probe resistance levels during the European session as it initially moved to test the 1.3725 area.

The Euro was briefly unsettled by a weaker than expected reading for the German ZEW business expectations index which fell sharply to 55.7 from 61.7 previously and EUR/USD retreated back to the 1.3700 area before attracting fresh buying interest.

There was a weaker than expected reading for the US New York Empire manufacturing index at 4.5 from 12.5 previously. Although there were expectations of a weather-related soft release, the data did trigger a further EUR/USD move higher with stops also triggered on the upside and a move to test the 1.3750 region.

Weaker than expected capital flows data helped engineer a further EUR/USD spike higher to the 1.3770 area and only a marginal correction emerged with a weaker than expected NAHB housing report adding to negative sentiment. USD/CHF was dragged below the 0.89 level as USD/JPY retreated below 102.50 with wider dollar sentiment again badly bruised during the session, although it did hold steady against commodity currencies.

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