Trading ranges were narrow on Friday, but with nervous tension over potential stop-loss activity. The Chinese inflation data was slightly weaker than expected, increasing speculation over a possible cut in interest rates to help underpin growth conditions. There were no major surprise from the Australian Reserve Bank monetary report and the Australian dollar was able to recover further ground as short covering remained a key feature during the Asian session.
AUD/USD initially broke above the 0.9100 level and pushed to highs near 0.9200 from three-year lows below 0.8850 reached earlier in the week. The dollar failed to gain nay major support from during Tokyo trading and USD/JPY was unable to regain the 97 level.
There was a weaker than expected reading for French industrial production which had a small negative Euro impact, but overall there was little in the way of fresh Euro-zone developments as the holiday season remained the dominant factor with low trading volumes.
There was further speculation that the Federal Reserve would look to taper bond purchases, potentially in September, with Cleveland Fed President Pianalto was the latest Fed speaker to make references to a stronger labour market. Markets will remain on high alert for further comments from key Fed officials during the forthcoming week.
Technical considerations remained important during the day as the Euro traded close to key resistance levels just above the 1.34 level, including the 200-week moving average. The currency was showing signs of being over-bought following strong gains and this made it even more difficult to attack resistance levels. In this environment, EUR/USD retreated towards 1.3350 even though underlying selling pressure was contained.
The latest UK trade data was better than expected with a goods deficit of £8.1bn for June from a revised £8.7bn the previous month as exports secured strong gains over the month. Sterling was unable to capitalise on the data as it remained prone to profit taking following substantial gains seen since the Bank of England inflation report. GBP/USD failed to re-test the 1.5580 area and retreated to test support near 1.55 during the New York session.
The Canadian employment data was much weaker than expected with a decline of over 10,000 for the month and USD/CAD spiked higher to 1.0350 before losing all of the gains.