USD claws back against EUR and GBP. Data and sentiment out of the U.S remains encouraging.

Tom Tong03/Jan/2014Currency Updates

GBP

London closed with Sterling losing fair gains against the greenback and dipping slightly against the Euro. Asian trading saw cable briefly trading sideways prior to clawing back minor gains midway through the session. Same story with the Euro with the pair bouncing around resistance levels with no notable movement.

Only U.K data release was Markit manufacturing PMI for December, as widely predicted we saw a slight dip with a move from last months 58.0 – 57.3. The market response was muted, fundamentally the dip is no cause for concern as the last manufacturing PMI came in at a 3 year high, therefore it was highly unlikely this would be repeated and overall the manufacturing sector continues to display gains.

Naturally plenty of noise over the cable levels and the dip from record highs. Put simply it would appear Sterling was overextended against the Dollar, light trading volumes always heighten uncertainty and volatility. Hot money went bullish on Sterling and the record highs led to profit taking which encouraged the dip. Next week trading volumes will pick up and the market will have fresh data to digest which should be a more natural market driver.

Data out of the U.K today includes- house prices and mortgage approvals (dec), net lending to individuals (nov) and construction PMI (dec)

EUR

London closed with the Euro scuttling a little higher against the pound. Against the Dollar we saw a snap back with the Euro losing momentum and dipping down throughout the day against the greenback.

Eurozone Markit Manufacturing PMI matched market expectations, however encouragingly Spain posted higher figures than anticipated. Still no good news for France with no uptick. France is becoming a headache to the ECB as unemployment continues to rise and the wider economy appears to be spinning its wheels in the rut of a recovery that initially started well but has now almost stalled and is consistently failing to kickstart.

Ultimately yesterdays Euro dip against the dollar, is driven by the same hot money that pushed it to such strong highs. Overall the Euro is still trading at strong levels. The market will now wait for further Euro data to illustrate a clearer view of the wider economic situation.

Data of note out of the Eurozone today includes- monthly money supply. Also Italian CPI and Spanish unemployment change.

USD

As expected the Dollar punched back hard against the record Euro and Sterling highs and brought them both down considerably. Dollar strength continued throughout the Asian session. Indeed across the board the greenback was up excluding the Aussie which saw a brief rally against the Dollar.

There was plenty who were calling New Year Dollar strength which added to the view that Euro and Sterling strength was unsustainable. Presently it would appear the majority of market makers have decided to take profit from long positions however the general consensus is that the Dollar will remain well supported. With a widely bullish outlook for the Dollar intraday resistance levels will increasingly come into play.

Plenty of data out of the U.S yesterday paints a strong picture for the wider economy. Jobless claims fell by 2K to 339K from 341K, Last week’s claims were revised up by 3K. With two straight readings a whisker form the underlying trend it is tempting to argue that the claims numbers are settling after an extended period of extreme volatility, triggered by the California systems problems, the partial government shutdown and old-fashioned seasonal adjustment problems.Odds point to a sharp drop in claims next week.

Markit manufacturing PMI was also fine, the manufacturing index slipped marginally to 57.0 in Dec from 57.3 in Nov, taking into account seasonal adjustment levels this is a good level. Construction spending also rose 1.0%, Right now things look rosy for the U.S.

Data of note out of the U.S today includes US auto sales with a slight dip called.

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Written by Tom Tong

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