Although the headline Japanese current account surplus was in surplus at a five-month high, there was a wider seasonally-adjusted deficit which will not provide underlying yen support with overall trade conditions still vulnerable. The dollar drifted weaker to just below the 99 level against the yen during the Asian trading on Monday, but found solid buying support on dips. Stronger than expected housing data did little to underpin the Australian dollar as AUD/USD tested barrier support near 0.9350.
The latest CFTC speculative data indicated a sharp reversal in positioning with a switch to net long speculative dollar positions in the latest week and the value of longs was at the highest level since September compared with a 7-month peak in short contracts during October. Long Euro positions also more than halved which will make it more difficult for the dollar to secure fresh gains with the Euro still likely to struggle on the crosses.
The dollar was vulnerable to profit taking during the European session on Monday with Euro bulls taking some comfort from the ability to hold critical support in the 1.33 area during Friday. There was further speculation of divisions within the ECB over monetary policy and there was underlying friction between the northern and southern members which could prove very damaging in the longer term. For now, the Euro was able to maintain a corrective recovery and EUR/USD drifted higher to the 1.34 area.
After frantic trading conditions during Thursday and Friday’s New York session, conditions were much calmer during Monday. The mood of consolidation had already been set earlier and was enhanced by the Veteran’s Day holiday which had an important impact in curbing volumes and stifling volatility. EUR/USD was able to avoid fresh selling pressure and looked to test resistance levels above 1.3400.
GBP/USD was unable to hold above the 1.60 level and retreated to lows below 1.5970 as the Euro looked to recover ground following the sharp sell-off last week. Expectations of a more hawkish Bank of England inflation report was important in preventing wider Sterling selling during the day.