FX Market Summary 07-18-2013: Yen comes under pressure

Following Fed Chairman Bernanke’s testimony on Wednesday, markets were in a quieter phase on Thursday. The net result of the Fed Chief’s comments was continued expectations of Fed tapering later this year, potentially in September, which did put a floor under US bond yields. Market conviction in the Fed was not high enough to trigger strong US dollar buying, especially as Bernanke continued to insist that developments would be dependent on economic progress and that there was no fixed timetable for action.

The small recovery in US bond yields which helped provide some underlying dollar support, notably against the yen as USD/JPY probed resistance levels above 100. There were also expectations that the LDP would win Sunday’s Upper-House elections which would strengthen Prime Minister Abe’s grip on power and give a further boost to Abenomics, reinforcing negative yen sentiment.

The headline UK retail sales data was in line with expectations with a 0.2% increase for June, but the annual increase was slightly higher than expected. There was also no downward revision to the previous data which had been expected. Although retailers may well have sacrificed margins and prices to boost volumes, the data still helped underpin confidence in the economy. From lows near 1.5150, GBP/USD responded favourably and  there was a move back above 1.52 with Sterling pressing Euro support around 0.86.
There were no significant Euro-zone developments as the German government looked to keep a lid on underlying tensions ahead of September’s Federal elections.

The latest US jobless claims data was better than expected with a decline to 334,000 in the latest week from a revised 358,000 previously which maintained underlying confidence in steady employment growth. There was a reluctance to sell the US currency aggressively with most players looking to buy on dips given a bullish longer-term outlook on US fundamentals.

Similarly, the latest Philadelphia Fed index much stronger than expected with an increase to 19.8 for July from 12.5 previously which was the highest reading for two years. The dollar still struggled to gain any traction against the Euro as EUR/USD support levels around 1.3070 held, but USD/JPY did move to challenge above 100.50.

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