FX Market Summary 11-19-2013: Dollar Can’t Generate Momentum

Late in the Asian session on Tuesday, there were reports that the Chinese PBOC would move to a less controlled managed float for the yuan and give it greater flexibility with a widening of the currency band. The comments triggered a brief spike in EUR/USD to 1.3540 and the Australian dollar also gained ground with an AUD/USD move to near 0.9450. The timing references were still vague which resulted in a quick reversal of dollar selling.

The German headline ZEW index was slightly stronger than expected with the fifth successive monthly increase to 54.6 for November which put the index at the highest level for nearly four years. There was, however, a deterioration in the current conditions index which dampened sentiment and Euro buying support following the data.

The OECD downgraded its Euro-zone growth forecasts in its latest outlook report which had some negative Euro effect, although the bigger impact was from the calls for the ECB to consider quantitative easing. Central-bank policy remained an important focus with council member Constancio stating that quantitative easing was a possibility, but had not been discussed in great detail. He also commented that there are concerns over the potential impact of any move to negative deposit rates.

Although the rhetoric surrounding possible quantitative easing triggered a Euro spike lower, the two main features seen over the past few days were again in evidence. There was solid Euro buying support on dips and a continuation of higher lows registered since the EUR/USD lows around 1.33.

The dollar was also struggling for wider support against European currencies despite evidence of weakening capital inflows to the Euro-zone. Markets were looking for evidence of more aggressive Fed rhetoric before justifying further buying support.

EUR/USD found support on dips to just below the 1.3490 level with another push higher to test resistance in the 1.3540 area late in the European session. USD/JPY did find support in the 99.60 area and rallied back above 100.00.

Sterling was broadly sidelined during the day as markets waited for the Bank of England minutes due on Wednesday. GBP/USD found support on dips towards 1.6050 and rallied back to the 1.61 area in line with a weaker dollar, but was unable to make much impression on resistance levels. In this context, EUR/GBP advanced to the 0.84 area.

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