FX Market Summary 12-10-2013: No Respite for the Dollar

Euro strength has again been the main focus for the past 24 hours. US Regional Fed President Bullard stated on Monday that recent job gains will bolster the case for a central bank tapering of bond purchases and he was optimistic over a further improvement. In this context, one possibility was that a small tapering move could be made at the December FOMC meeting.

Although the comments suggested an increased potential for a move next week, it also suggested that the Fed will take any initial steps very slowly in an attempt to prevent any surge in bond yields. In this context, the dollar failed to gain any support from the rhetoric as US benchmark bond yields actually drifted lower.

The latest Japanese data releases were generally weaker than expected with a decline in the manufacturing index and a significant drop in the latest services-sector index. This will increase concerns over the Japanese outlook and maintain pressure on the Bank of Japan to expand policy even more aggressively.

The yen initially remained on the defensive with a EUR/JPY move beyond 142 as USD/JPY held above 103.0 Profit taking kicked in once the pair failed to break 103.40/50 with a move back below the 103 level as both currencies remained firmly out of favour.

The latest UK housing data remained upbeat with the RICS house-price index rising to a fresh 11-year peak with overall price expectations at a 14-year high. This maintained a bid tone for Sterling even though Bank of England Governor Carney again pledged that interest rates would not be increased in the short term.

The UK manufacturing data was in line with market expectations while the trade balance was again weaker than expected for the month. GBP/USD built on the break above 1.64 and moved to a peak around 1.6465 before hitting profit-taking pressure as EUR/GBP rebounded from 0.8350 support.

As has been the case throughout the past few sessions, the dollar was unable to gain any traction against the Euro with the familiar pattern of EUR/USD surge higher followed by a very weak correction and fresh Euro buying support.

EUR/USD moved above the 1.3740 area and a correction failed to push it back below this level ahead of the US open. Although solid, the latest US job-openings data was slightly weaker than expected at 3.93mn for October from a downwardly-revised 3.88mn previously. EUR/USD broke to a fresh six-week high just below 1.38 late in European trading as USD/CHF tested long-term support levels near 0.8850.

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