EUR/USD
Consolidation was the dominant theme ahead of the US payroll data on Friday with the Euro unable to sustain a move to the 1.3180 area against the dollar. The Euro-zone PMI services data did not have a major impact as it confirmed that recovery was being led by Germany and France while Spain and Italy continued to falter despite some monthly improvement. The Euro-zone retail sales data was weaker than expected with a second successive 0.4% monthly decline.
The US data was much stronger than expected with a 243,000 increase in non-farm payrolls for January from a revised 203,000 increase the previous month while the unemployment rate again declined unexpectedly to 8.3% from 8.5%. There was an important impact on risk appetite as confidence in the US and global economy improved with US Treasury yields also moving higher.
The Euro initially attempted to move higher, before weakening to re-test support below 1.32 in predictably volatile trading conditions. The US ISM non-manufacturing survey was also stronger than expected at 56.8 for January which was an 11-month high as the orders and employment components were robust.
As well as the US data, markets also had to contend with further drama in Greece as the Prime Minister attempted to win backing for fresh austerity measures from the coalition parties. A planned Eurogroup meeting on Monday was cancelled due to a lack of agreement and there were harsh warnings from the troika that there as a Monday deadline for securing the necessary approval and avoiding a debt default. Negotiations continued throughout the weekend with no deal announced and further rumours of resignations.
The Euro recovered late on Friday before dipping again in Asia on Monday as markets took a more cautious stance. The latest IMM positioning data recorded a small decline in Euro shorts from record highs.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar found support close to the 76.20 area against the yen ahead of the payroll data on Friday and a much stronger than expected figure propelled the US currency higher with a peak above 76.70.
The US currency will continue to gain some support from higher yields and the yen will tend to lose support if risk appetite improves. There are still very important fears surrounding the Euro-zone outlook and confidence in the Asian economy is also liable to falter which will tend to limit selling pressure on the currency.
Although the immediate dollar pressure has eased, markets will also continue to focus closely on the possibility of Bank of Japan intervention, especially with domestic pressure for action still increasing and the dollar nudged higher again on Monday.
Sterling
Sterling was again unable to push above 1.5850 against the US currency on Friday and retreated to lows near 1.5750 following the US data before regaining the 1.58 level as the UK currency attacked resistance levels beyond 0.83.
The UK PMI services-sector data was much stronger than expected with a rise in the January reading to 56.0 from 54.0 previously and this was the strongest reading since March 2011. There will be some reservations over seasonal adjustment, but there was certainly relief surrounding the data.
There was a shift in expectations surrounding Bank of England quantitative easing following the data, especially with officials slightly more optimistic in general. Expectations of additional quantitative easing were scaled back following the data and this should have some positive impact on Sterling.
The Greek situation will also be monitored closely as fresh fears surrounding the Euro-zone would invite additional Sterling volatility. There would be scope for defensive inflows, although international sentiment towards gilts at current yields appears to have weakened.
Swiss franc
The dollar found support below 0.9150 against the franc on Friday and regained the 0.92 level before retreating again. The Euro attempted to move away from the 1.2050 area, but was unable to make much headway. The Greek situation will be watched closely as any fresh fears surrounding a destabilising default would risk renewed capital flows into the Swiss currency.
Markets will remain on alert for comments from National Bank officials, especially if they look to take advantage of any weakness to trigger additional currency losses.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar found support in the 1.0680 area against the US dollar on Friday and pushed sharply higher following the US payroll data. The improvement in risk appetite helped push the currency to highs near 1.08 for fresh 3-month highs.
The domestic economic data was mixed with a weaker than expected retail sales report as sales dipped 0.1% for the month, although this was offset by a 6.0% gain for ANZ job ads in the latest survey. There will be caution ahead of the Reserve Bank interest rate decision with markets expecting a 0.25% cut at Tuesday’s meeting and there was a dip to test support near 1.07.
