The latest CFTC positioning data recorded a net long speculative Euro position against the dollar for the first time since mid June at just over 6,000 contracts which will substantially lessen the risk of a further Euro gains on position adjustment. Despite a third successive weekly decline, the overall positioning bias was still heavily long dollars which will hamper the US currency on a wider basis.
The latest Japanese GDP data was weaker than expected with a 0.6% increase for the second quarter compared with expectations of a 0.9% gain. Although the data is always volatile, the weaker than expected outcome increased uncertainty surrounding growth prospects.
There was a decline in confidence surrounding Prime Minister Abe’s economic policies and there was also increased speculation that an increase in the sales tax could be delayed. USD/JPY initially dipped to lows just below 96 on hedge-fund selling before rallying initially to highs around 96.50 as pressure for Bank of Japan monetary activism unsettled the Japanese currency. Chinese equity markets rallied which did help underpin risk conditions and USD/JPY pushed to highs around 96.90.
There was increased speculation that the Federal Reserve would move to taper bond purchases during September even though there were no fresh data releases or major speeches by Fed officials. There were also expectations that this week’s US data releases would register a firm tone which would strengthen the hand of Fed hawks.
In this environment, the dollar maintained a firm tone as the trade-weighted index recovered from seven-week lows seen last week. EUR/USD was unable to mount any attack on resistance levels and dipped below support in the 1.33 area with speculation that Greece would need a fresh loan package having a limited negative impact. EUR/USD bears were still having problems in gaining any momentum with a rally back towards 1.33 later in New York as USD/JPY came off its best levels.
There was a similar pattern for Sterling as GBP/USD dipped to lows in the 1.5465 area before consolidating just above this level. Sterling was cushioned by an advance beyond 0.86 against the Euro as market waited for important UK data releases this week. The latest consumer inflation figures are due on Tuesday with the unemployment data on Wednesday and these will have a significant impact on interest-rate expectations.