Asian equity markets in general and the Japanese Nikkei index in particular were again a major focus on Thursday. After a brief respite from selling pressure, there was renewed and aggressive selling which pushed the Nikkei index to closing losses of over 6% with the index down 22% from its recent peak.
The dollar had managed to secure only a fragile recovery from the 95 support level and weakness in Asian markets quickly triggered fresh selling pressure on the US currency. USD/JPY triggered substantial stops on the downside as a reported major option position was breached at 95 and the pair dipped sharply to lows around 93.80 late in the Asian session.
The dollar’s trade-weighted index dipped to a four-month low and, has been the case over the past few days, weakness in USD/JPY spilled over into wider US vulnerability with EUR/USD moving to 13-week highs just below the 1.34 level. The Euro tended to underperform on the crosses which dragged EUR/USD lower during the European session as Sterling strengthened to beyond the 0.85 level.
The latest US retail sales data was slightly stronger than expected with a headline advance of 0.6% for May compared with expectations of 0.4% while core sales rose by the expected 0.3%. The latest jobless claims data registered a decline to 334,000 in the latest reporting week from 346,000 previously which provided further relief surrounding labour-market trends.
Federal Reserve policy remained a crucial talking point ahead of next week’s FOMC meeting with uncertainty a key factor, especially given mixed US data releases. There has been increased speculation that the Federal Reserve is looking to taper bond purchases late in 2013 and will take a lot of dissuading from this policy. Markets remained on high alert for any unofficial briefing by Fed officials.
EUR/USD did retreat to the 1.3280 area, but bears were unable to gain any significant traction and there was renewed buying support late in the European session as it moved back to the 1.3330 area with the US currency unable to secure sustained backing. GBP/USD was able to take advantage of wider dollar vulnerability and tested fresh four-month highs above 1.57.
Commodity currencies also demonstrated a firmer tone during the day despite global equity markets being generally on the defensive and precious metals falling. The Australian dollar recovered from over-sold conditions as AUD/USD moved back to the 0.96 area from lows below 0.94 earlier in the week while USD/CAD was trapped below 1.02.