The latest CFTC positioning data continued to register a very high number of speculative short yen positions which will maintain the potential for a squeeze on shorts, especially given seasonal considerations. Tokyo markets were closed for a holiday on Monday which dampened activity even further in a lacklustre pre-Christmas currency market.
There was a further squeeze in China’s money markets during Monday with the PBOC again adding liquidity. Asian currencies were broadly resilient which lessened the potential impact, but there was still some dampening impact on risk appetite. USD/JPY was able to find support in the 104 area, while remaining trapped in very narrow ranges.
The latest CFTC data recorded also a slight decline in net long dollar positions and a small increase in Euro longs which will make it difficult for the Euro to advance significantly. Trading conditions were very quiet during the European morning with a lack of liquidity and little in the way of significant data releases to enliven interest.
The US personal spending data was in line with expectations for November while the income data was slightly weaker than expected while the University of Michigan consumer confidence index edged slightly lower. The core consumer spending inflation index was also in line with expectations with an increase of 0.1% for the month.
Given no immediate sign of an up-tick in inflation metrics, the Fed will continue to take a very cautious stance on quantitative easing plans with fears that inflation could be too low. Regional Fed President Lacker stated that tapering in December was the correct move and that further planned reductions could be accelerated or paused depending on economic developments.
EUR/USD continued to draw support from the ability to hold support levels and there was a further suspicion of year-end buying associated with capital repatriation. In this environment, EUR/USD again pushed higher to make a fresh attempt on the 1.3700 resistance area early in New York and looking to trigger stops above.
Sterling was unable to gain any fresh buying support as it drifted weaker towards 0.84 against the Euro as GBP/USD hit selling interest above 1.6350 while USD/JPY attempted to move back above the 104 level as the yen drifted weaker on the main crosses with GBP/JPY back above 170.