FX Market Summary 09-13-2013: Position adjustment dominates

The US currency gained some support early in European trading on Friday from reports that US President Obama was close to appointing Summers as the next Federal Reserve Chairman. These reports were later denied by the Administration which did trigger some dollar reversal in choppy trading conditions.

The headline US retail sales data was weaker than expected with an increase of 0.2% for August while the underlying gain was also lower than expected at 0.1% compared with an expected 0.3%. The potential negative impact on the dollar was offset by an upward revision to July’s data as US Treasury yields recovered from initial lows.

The University of Michigan consumer confidence index was also lower than expected at 76.8 for September from 82.1 previously and this was the lowest figure since April. Markets had again been looking for robust data to prime the case for a Fed tapering at next week’s FOMC meeting, but there was again disappointment and uncertainty following the data releases.

EUR/USD gained support at times and briefly pushed to a high at the 1.3320 area. For the second day running, the pair stalled at this level and weakness on the crosses was instrumental in pushing EUR/USD to lows below 1.3260 following the New York option expiry with widening yield spreads hampering the Euro. The currency was also hampered by a further decline in gold prices.

There was volatile yen trading on Friday, spurred in part by position adjustment ahead of a long weekend in Tokyo. Underlying confidence in the Japanese fundamentals remained weak. There were also expectations of expansionary Bank of Japan policies to offset any increase in the sales tax. USD/JPY pushed to a peak close to 100.0 before retreating to test support near 99.40 after the weaker than expected US data releases.

Sterling maintained a firm tone throughout the day and there was increasing evidence of retail short covering, especially after the US economic data releases. There was a comprehensive break of EUR/GBP support at the 0.84 level which was an important longer-term technical breach. This combination pushed GBP/USD to a fresh 8-month high above 1.5850 during the New York session.

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