After a relatively uneventful Asian session, there were mixed Euro-zone economic releases on Wednesday which did not have a decisive market impact. There was a weaker than expected German retail sales report with a 1.5% decline for July and there was also a decline in French consumer spending.
More positively, the unemployment data for the region and for Italy were slightly better than expected with the former showing a decline for the first time in over two years at 12.1%. The data did maintain some expectations of recovery in the Euro-zone, although the decline was triggered more by work-force departures rather than any employment gains.
Month-end positioning continued to have a significant impact with Sterling again a significant casualty during the day. A Euro break above 0.87 helped trigger further stop-loss Sterling selling as the pair peaked near 0.8750. GBP/USD also continued to lose ground with a low below 1.5130 as generally supportive UK economic data releases had no positive impact. There were further expectations of a dovish Bank of England tone, especially surrounding next week’s inflation report, and this remained a negative Sterling influence.
EUR/USD again flirted with the 1.33 level and was again repelled by underlying selling interest ahead of the US open. The US data releases were watched very closely and had a positive tone. There was a 200,000 increase in ADP employment for July and the June figure was also revised up to show a gain of 198,000. The data increased optimism surrounding the economy and also boosted sentiment ahead of both the Federal Reserve statement later on Wednesday and payroll data on Friday.
There was also a stronger than expected second-quarter GDP reading of 1.7% compared with an expected 1.1%. There was a downward revision to the first quarter, but 2012 estimates were revised significantly higher while the Chicago PMI index was slightly lower than expected at 52.3. The data flow overall was dollar positive and EUR/USD retreated to below 1.3230 while USD/JPY moved above 98.20 from a low below 97.60.
The dollar was unable to sustain the gains as EUR/USD rallied back to the 1.3260 area ahead of the Fed statement. The Euro also maintained a firm tone on the main crosses with players taking advantage of dollar rallies to offload stale long positions.
The Australian dollar remained under pressure and the stronger than expected US data pushed AUD/USD decisively below the 0.90 level for the first time in three years.