FX Market Summary 11-27-2013: Sterling Takes Centre Stage

The UK GDP data was broadly in line with expectations as third-quarter growth was confirmed at 0.8%. There was a slight upward revision to capital spending estimates, but exports were disappointing and there was little in the data to excite Sterling bulls. The latest CBI retail sales survey was also significantly weaker than expected.

Technical considerations were very important, however, especially with GBP/USD challenging crucial longer-term resistance levels. A move above 1.6250 triggered heavy stop-loss buying and GBP/USD raced to a peak around 1.6330 before being subjected to profit taking. There was also notable strength against the Euro as EUR/GBP declined sharply to 0.8330.

EUR/USD broke higher during the Asian session on Wednesday as players were able to take advantage of thin liquidity with an initial move to just below 1.36. Retracements were limited and the pair spiked higher again to above 1.36 in Europe.

Although there was further speculation over ECB action, this time in the form of an LTRO with conditions attached, the Euro continued to secure underlying support. There was further important divergence as the dollar was firmly on the defensive against European currencies while it advanced elsewhere.

Risk appetite remained generally strong during the European session which prevented the yen gaining any fresh support. EUR/JPY moved above theĀ 138 level to fresh four-year highs with GBP/JPY also at the highest level since 2009.

The headline US durable goods data was marginally weaker than expected with a 2.0% monthly decline, but other data points were better than expected. Jobless claims fell to 316,000 in the latest week from a revised 326,000 previously, while there was an upward revision to the University of Michigan consumer confidence index. The Chicago PMI index also held comfortably above 60.0, maintaining the run of favourable PMI releases.

In response, there was a renewed increase in US bond yields while equity markets were able to hold firm. This was the worst combination for the yen and USD/JPY pushed higher again with a move above the 102.0 level before encountering some profit taking. EUR/USD was unable to hold 1.36 and edged back to 1.3575 as liquidity faded ahead of the Thanksgiving Holiday.

Commodity currencies remained under significant pressure during the day despite firm risk conditions. Crude oil prices dipped to their lowest level since June which helped propel USD/CAD to highs at 1.06 for the first time since early July. The Australian dollar also remained under sustained selling pressure with AUD/USD sliding to lows just below 0.9070 during New York trading.

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