EUR/USD
The Euro maintained a firm tone in Europe on Thursday with strong buying support ahead of the US open as it pushed to fresh one-month highs in the 1.3170 area. The dollar was still under pressure following the more dovish than expected Federal Reserve statement while the Euro gained support from rumours of a Greek private-debt restructuring deal.
In the event, there was still a high degree of uncertainty surrounding Greece and no deal was forthcoming with discussions set to continue on Friday. There were also further concerns surrounding the Portuguese situation as benchmark yields continued to rise to record levels with 10-year yields close to the 15% level. There were further rumours of pressure on the ECB to take losses on its substantial holdings of Greek bonds which unsettled sentiment in an environment of uncertainty.
There was further pressure for the ECB to take a more aggressive stance towards interest rates which curbed Euro support.
The US jobless claims data recorded an increase to 377,000 in the latest week from 356,000 previously while durable goods orders rose 3.0% in the latest month. The data impact was inevitably limited at this stage as markets continued to consider the Federal Reserve statement and prospect for a continuation of near-zero interest rates. The US currency was still unsettled by the possibility of further quantitative easing as defensive dollar demand remained lower.
The Euro again peaked in the 1.3180 area against the dollar before retreating to test support below the 1.31 level as the currency suffered from the persistent uncertainty.
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Yen
The dollar was unable to gain any fresh momentum during Thursday and generally drifted lower, although ranges were narrow. The yen also gained some respite on the crosses as the Euro recovery was blocked in the 102 area.
The US data releases failed to provide any sustained support for the US currency as the potentially positive impact of a firm durable goods release was offset by the pledge of ultra-low Federal Reserve interest rates.
There was a stronger than expected Japanese retail sales release with a 2.5% annual increase in the year to December while the inflation data was broadly in line with expectations with a 0.1% annual decline with no significant policy implications.
Sterling
Sterling found solid support in the 1.5650 area against the dollar and briefly pushed to a fresh two-week high around 1.5720 against the US currency, but it was unable to sustain the move and edged back to the 1.5670 area. The Euro was unable to hold a position close to 0.84 against the UK currency.
The latest CBI retail sales survey was substantially weaker than expected with a decline to a three-year low of -22 from +9 the previous month. The data reinforced a lack of confidence in the spending outlook even though the official sales data has held generally firmer.
There will be further expectations that the Bank of England will engage in further quantitative easing, potentially as soon as February. There will also be uncertainty over defensive flows from the Euro-zone, especially if confidence in the Portuguese outlook continues to deteriorate.
Swiss franc
The dollar found support in the 0.9160 area against the franc on Thursday and advanced back to the 0.9220 area, but progress was hampered by a generally firm franc tone on the crosses.
Markets remained extremely sensitive to the threat of National Bank action, especially as Euro retreated back towards the 1.2050 region where the bank is rumoured to have substantial franc sell orders placed.
The KOF business confidence index will be watched closely on Friday and a further deterioration would maintain pressure for central bank action to weaken the franc further, especially as German business confidence has improved.
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Australian dollar
The Australian dollar peaked in the 1.0675 area against the US currency during Thursday and drifted lower during the US session with a test of support below 1.06 in the Asian session. There was pressure for profit taking following a strong advance over the previous two days and there was also a slightly more cautious attitude towards risk.
There were no major data releases during the day and there was some uncertainty ahead of the re-opening of Chinese markets next week. There will be some speculation over a relaxation of monetary policy which may help underpin risk.
