EUR / USD
There were no major economic data releases during Friday with risk conditions tending to dominate. The Euro was unable to challenge the 1.1700 level against the dollar ahead of the New York open and touched a marginal new 9-month low, although underlying selling pressure eased slightly later in the day.
Risk conditions stabilised later in the day which pulled the US dollar back from fresh 9-month highs as commodity currencies attempted to recover ground.
The Euro did, however, pare some gains on the crosses as pressure for a covering of carry trades eased which limited the potential for wider gains.
Overall, the Euro settled just below 1.1700 after failing to hold above this level as overall yield spreads limited Euro support.
CFTC data recorded a notable increase in long Euro positions to over 57,000 in the latest week from just below 34,000 previously which suggests that hedge funds were looking to buy Euro dips. A key market element will be whether the latest Euro dip triggers a fresh round of single-currency selling or renewed buying on dips.
There was a recovery in risk appetite during the Asian session which dampened defensive demand for the dollar with the Euro strengthening to the 1.1715 area. The latest business confidence releases will be watched closely on Monday with flash August data for the Euro-zone and US. Markets were also braced for choppy trading during the week ahead of Fed Chair Powell’s comments on monetary policy on Friday.
US Treasuries overall lost ground on Friday, although narrow ranges prevailed with the 10-year yield settling around 1.25% at the European close. US equities traded higher which helped underpin risk appetite and the yen lost an element of defensive demand later in the day.
Overall, the dollar was able to secure a limited net advance to the 109.80 area while the Euro secured a limited net recovery to 128.40.
CFTC data recorded a net increase in short yen positions to over 63,000 for the latest week from below 61,000 previously, maintaining the potential for sharp position adjustment, especially if global risk conditions remain vulnerable.
Japan’s PMI manufacturing index edged lower to 52.4 for August from 53.0 previously while the services index retreated to 43.5 from 47.4 as the coronavirus emergency continued to sap confidence in the domestic economy. China’s Commence Ministry stated that the country may face a more complicated trade situation next year, but overall risk appetite recovered ground during the Asian session with encouraging data from China on coronavirus developments helping to underpin market confidence. Defensive yen demand faded to some extent during the session with the dollar edging towards 110.00 with the Euro strengthening to around 128.70.
Sterling edged lower following the weaker than expected retail sales release with further speculation that the economic recovery could slow, although the underlying distortions and impact of stronger demand for services continued to make data interpretation very difficult. The slightly lower than expected government borrowing requirement had little impact, although with some relief that the deficit for the first four months of fiscal 2021/22 declined by close to 50% from last year.
Sterling dipped to fresh 4-week lows close to 1.3600 against the dollar and secured only a slight recovery given doubts over any Bank of England tightening. A very cautious improvement in risk appetite did, however, curb UK selling to some extent and the Euro edged lower from highs above 0.8580.
CFTC data recorded a decline in long non-commercial Sterling positions to just below 5,000 in the latest week from just over 7,000 the previous week which suggests an underlying lack of conviction over trends, although there were expectations of further merger-related buying interest.
UK business confidence data will be watched closely on Monday for further evidence on recovery trends with risk trends also crucial. The firmer tone underpinned the UK currency as it secured a limited advance to 1.3650 against the dollar, but wider support was limited and the Euro retreated only slightly from 4-week highs.
The Swiss franc edged lower on Friday with immediate demand curbed by a tentative recovery in risk conditions, but there was still an important element of caution as markets monitored global economic trends. The Euro settled just above the 1.0720 level against the Euro with the dollar unable to break above the 0.9200 level.
Swiss sight deposits data will be watched closely on Monday for further evidence on the National Bank intervention stance.
The franc edged lower on Monday as risk appetite strengthened with the Euro slightly higher at 1.0740 and the dollar around 0.9165.