FX Market Summary 11-06-2013: ECB appears to say no

Euro bears were again unable to push EUR/USD below the 1.3450 area on Tuesday and this helped trigger a covering of short positions with a move back towards the 1.35 area. There was a fresh spike higher to the 1.3520 area early in US trading with the Euro again buffeted by moves on the crosses.

There was little action on the US front with further caution ahead of Friday’s payroll report, especially given the fact that the data will be distorted by last month’s government shutdown. There were contradictory expectations on capital inflows into the dollar as uncertainty prevailed.

There was a slightly positive tone to the latest Euro-zone data releases with an upward revision to the PMI services index to a final 51.6 from the flash 50.9 with Italy again the main source of disappointment over the month.

There was evidence of further political pressure on the ECB to tackle deflationary pressures and the strong Euro with Italian and French government ministers both calling for action and a weaker Euro over the past 24 hours.

There was a high degree of caution ahead of Thursday’s ECB meeting and, despite political pressure, there was a slight fading in expectations of any cut in interest rates which tended to prevent any significant selling pressure on the Euro. Late in the European session, there were wire reports from sources suggesting that the ECB would not cut rates at Thursday’s meeting with a suggestion that inflation alone should not dictate policy while LTRO’s were not top of the communication list. There was also an admission that securing unanimity was problematic.

These reported comments had an immediate impact on EUR/USD which pushed to daily highs above 1.3540 while USD/CHF dipped to test support in the 0.91 area. USD/JPY did manage to retain a firm tone as it held above the 98.50 level with the yen losing some ground on the crosses.

The UK manufacturing data rebounded in September from the sharp August drop and a slightly higher than expected reading for industrial output, coupled with another monthly gain for the Halifax house-price index, helped push Sterling higher with a GBP/USD move above the 1.61 level.

There was technical resistance in the 1.6120 area which curbed buying interest and there was also a slightly disappointing reading for the latest NIESR GDP estimate at 0.7% for the three months to October.

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