FX Market Summary 11-26-2013: Dollar Confidence Disappointment

EUR/USD pushed higher to test resistance levels above 1.3550 in Asian trading on Tuesday with the failure to break higher triggering some profit taking on long positions into the European open.

There was a further stream of rhetoric from ECB officials with Coeure, for example, stating that negative rates were a possibility while other members were keen to reiterate that there was limited room for manoeuvre on policy. There was also a report of dovish ECB speculation from a leading research organisation.

The latest US housing data was stronger than expected with permits rising in October to above the 1.00mn level for the first time in over six months from 0.97mn previously while the Case-Shiller house-price index recorded a 13.3% annual increase. There was also a stronger than expected reading for the Richmond Fed index. The dollar was able to gain some traction from these releases as EUR/USD dipped to lows near 1.3520 while USD/JPY pushed to the 101.65 region.

In contrast, there was a weaker than expected reading for US consumer confidence with a decline to 70.4 for November from 72.4 previously. Although the correlations are generally tentative at best, the survey also suggested greater concerns over the longer-term outlook for jobs. This will also make it more difficult for the Fed to justify a tapering of bond purchases given that the labour market remains a prime focus.

There were also ECB reports suggesting no consensus for further action at the December policy meeting, dampening expectations of further measures and EUR/USD recovered to the 1.3540 area in choppy and indecisive trading conditions.

Bank of England Governor Carney and other members of the MPC committee testified to the Parliamentary Select Committee on the latest inflation report. Carney was critical of the National Statistics Office, demanding better data to make judgements on economic direction and policy.

As far as the economy is concerned, there was a re-iteration of forward guidance with the commitment not to raise interest rates even with firm growth in the economy. The 7% unemployment level is not a trigger for policy action according to the MPC and there were also hints that this level could be lowered. The testimony overall lacked hawkish elements and did not provide significant Sterling backing. GBP/USD did, however, find support below 1.6150 while there were small losses for EUR/GBP to 0.8365.

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