FX Market Summary 07-09-2013: Sterling takes a beating

The latest CFTC positioning data recorded an increase in the net long dollar positioning, especially against the Australian dollar. There was also a renewed shift to a net short Euro position which triggered some reservations over aggressive dollar buying, although it was not an extreme figure by historic standards.

In general terms, consolidation was still the underlying theme in EUR/USD for much of Tuesday. Although there was caution over aggressively selling the pair, especially after it was able to hold above 1.28, fundamental Euro support for the Euro was in short supply. There was little reaction to Greece securing the next loan tranche in tandem with demands for greater compliance as it was seen as little more than a political exercise ahead of the September German elections.

The latest US job openings data recorded a modest advance for the May reading which maintained a generally optimistic stance towards the US outlook. EUR/USD dipped lower again with selling also bolstered by the inability to move above the 1.29 area earlier in the day.

Comments from ECB member Asmussen that forward guidance on monetary policy goes beyond 12 months triggered another round of EUR/USD selling as it dipped below the 1.28 level for the first time since the middle of May. The dollar secured wider gains against European currencies which pushed the trade-weighted index to fresh 3-year highs. From a peak near 0.92 achieved on short covering, AUD/USD also fell sharply to lows below 0.9150.

Sterling was the biggest mover on the day as volatility spiked higher once again. GBP/USD started the European session on a firm footing, holding comfortably above the 1.4950 and looking to push higher. Sterling had been underpinned by a further recovery in the RICS house-price survey which recorded a net 21% of surveyors reporting higher prices, the strongest reading for three years.

The latest industrial data was weaker than expected with production unchanged for May following a revised 0.1% decline the previous month. There was an even weaker reading for manufacturing output with a 0.8% monthly decline. The data deflated a mood of optimism surrounding the UK economy with Sterling selling-off sharply. A break through support levels near 1.49 triggered further stop-loss selling, equalling 2013 lows at 1.4832 before a limited recovery.

The data was disappointing, but the ferocity of the sell-off will raise further concerns over underlying Sterling fundamentals and it hit a fresh 2013 low below 1.4820 later in New York trading.

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