EUR/USD
The Euro found support on any dips towards 1.30 against the dollar on Friday as selling pressure eased. There was pressure for profit taking following dollar gains during the week and the failure to break important resistance levels was also an important catalyst in cutting back long positions.
The headline US consumer prices data was in line with market expectations with a 0.4% monthly increase as energy costs increased, but the core reading was slightly lower than expected at 0.1%. The benign core reading dampened any speculation that the Federal Reserve would move towards a tighter monetary policy and curbed any additional dollar yield support.
The growth-orientated data was weaker than expected with industrial production unchanged in February compare with expectations of a 0.4% increase while the University of Michigan consumer confidence index retreated to 74.3 in March from 75.3 previously. In this environment, the hawkish comments from regional Fed President Lacker did not have a major impact on sentiment as US support was more subdued.
The dollar retreated further during the US session with the Euro hitting a high close to 1.3180. The latest IMM positioning data recorded a further modest decline in net Euro short positions, although there is still a substantial net long dollar position as a whole. There were still important concerns surrounding the Euro-zone outlook as the IMF warned Greece over the severe implications of any delays in implementing fiscal austerity measures. There were also further doubts surrounding Portugal with fears that the country would eventually need a bailout. The Euro was little changed in Asian trading on Monday.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar was unable to make any fresh attack higher during Friday. The weaker than expected US data had a significant impact in curbing any additional yield support for the dollar. Underlying yen sentiment was still generally weak as structural fears continued and this prevented the currency from gaining any significant momentum.
The latest IMM data recorded an increase in net yen short positions to the highest level for 11 months and any further move towards extremes in positioning would increase the risk of a more substantial dollar correction weaker.
There was still net yen selling on rallies with the dollar finding support on dips towards the 83.20 area while the Euro challenged resistance above 110 in Asia on Monday.
Sterling
Sterling found support on dips towards 1.57 against the dollar on Friday and pushed sharply higher during the New York session with a peak around 1.5850. The move higher accelerated on stop-loss selling once resistance levels were broken and Sterling also maintained a strong tone against the Euro even with an attack on resistance below 0.83. The net result was a 10-week high for the currency on a trade-weighted basis.
There was caution ahead of the UK budget due on Wednesday and the banking sector will also be a very important focus. There was a further sharp drop in UK claims on overseas banks during the fourth quarter, but the total outstanding is still at extreme levels from a historical perspective and the UK currency will, therefore, be vulnerable if there is a deterioration in risk appetite.
The latest Rightmove house-price index reported a 1.6% increase for March and a 2.2% annual increase, although there will still be a high degree of caution over the underlying outlook.
Swiss franc
The dollar hit resistance near to 0.9250 against the franc on Friday and dipped sharply during the New York session with lows close to 0.9150 on a wider US retreat. There was still evidence of disappointment over a lack of more aggression stance surrounding the Swiss currency following Thursday’s National Bank meeting and the Euro dipped again to test support below 1.2060.
Despite National Bank determination to block currency gains, there will still be the potential for defensive flows into the Swiss currency, especially with other major economies resisting currency gains and continuing to sanction expansionary monetary policies.
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Australian dollar
The Australian dollar found support on dips towards 1.05 against the US currency on Friday and jumped higher later in the day with a peak in the 1.0580 region as a softer US currency was compounded by an overall improvement in risk appetite.
The currency maintained a firm tone in Asian trading on Monday with a challenge on resistance levels above 1.06. Reserve Bank Stevens was generally optimistic surrounding the regional economy which helped underpin the Australian currency.
