Trading conditions were inevitably extremely subdued during the European session on Tuesday ahead of the delayed US payroll data due soon after the US open. EUR/USD was confined to very narrow ranges of less than 20 pips around 1.3670 with no attack on any technical levels of note.
Markets were cautiously optimistic surrounding the US data, but there was a high degree of uncertainty both over the release and any potential policy implications.
In the event, the headline employment data was weaker than expected with an increase of 148,000 monthly gain for September compared with expectations of around 180,000. There were again significant revisions with the August figure this time revised up to 193,000 from the original 169,000. There was also a decline in the unemployment rate to 7.2% from 7.3%.
Despite these revisions, the dollar weakened sharply in response to the disappointing headline reading with EUR/USD pushing above the 1.3710 level. The move higher was then enhanced by stop-loss Euro buying and the pair pushed higher again to a fresh 2013 high as it also took-out a reported option barrier at the 1.3750 level with a peak above 1.3780.
The dollar also came under heavy selling pressure against the Swiss franc and briefly dipped to the lowest level since early 2012 and failing to secure any significant recovery. Retail positioning remained a significant influence with excessively short positions again stopped out as European currencies pushed higher.
USD/JPY did move below the 98 level following the US data before recovering as the US currency erased most of its losses. In this context, there was an improvement in global risk conditions with EUR/JPY moving strongly above the 135 level as yen support also faded.
Following the US payroll data, markets continued to assume that the Federal Reserve would maintain the aggressive quantitative easing programme and not sanction any tapering of bond purchases this year. This speculation continued to underpin risk appetite on expectations of easy monetary conditions.
Sterling maintained a slightly softer tone against the Euro as EUR/GBP edged towards the 0.85 level during the day. Although there were some expectations of more hawkish Bank of England minutes, MPC officials were keen to play-down the possibility of higher interest rates and this has some restraining influence on the currency. GBP/USD did find support on approach to 1.61 and attacked resistance above 1.62 as the dollar was subjected to wider selling pressure.