Greenback struggles as tapering talk subsides

The main theme in the FX space was renewed US dollar weakness on the back of a round of disappointing US economic data.

Unemployment claims came in higher than expected, while the manufacturing PMI print fell short of estimates. This reasserted analyst expectations for tapering into next year, rather than by the end of this year. Most of the major currency pairs just remained steady, with [currenciesUSDJPY] sidelined around 97.30 heading into today’s CPI numbers. Japan’s CPI data released at 10.30 AEDST failed to spark any major moves in the pair as it showed inflation isn’t quite making the progress that Japanese leaders would like to see. As a result, USD/JPY is now hanging around near the lower end of the recent trading range at 97.20. I will be eyeing a break out of the current trading range of 97.20 to 97.60 (to the upside or downside) for a momentum trade.

Euro holds firm

The single currency remains resilient, with EUR/USD still testing the 1.38 handle. Although the pair has tapered off a bit in Asia, it remains within striking distance of 1.38. The pair printed a high of 1.383 in US trade, its highest level since November 2011. Yesterday’s PMIs were quite subdued and failed to provide a platform for the pair to extend its gains. However, the mere fact that it didn’t pull back on the mostly disappointing data suggests traders are still quite bullish on EUR/USD. I get the sense the asset quality review (AQR) might prompt a round of repatriation by the banks in the region and underpin the euro. Later today we have the money and credit aggregates for September, the German IFO for October and Italian retail sales for August to look out for.

Choppy trade for cable

GBP/USD continues to drift higher despite some fairly choppy trade. The source of volatility for cable was a headline from a Mark Carney speech, saying the BoE will consider offering broader access to cheaper funds. Despite all this, the pair is holding at 1.62 ahead of more data out of the UK. Later today we have the advance reading on Q3 GDP which is expected to show 0.8% growth. Some analysts are quite bullish and are expecting to see a reading of around 1%. Any beats on the GDP front will be enough to see cable extend its gains. On the US front we have durable goods orders, consumer sentiment and inflation expectations. All this data will continue to shape tapering expectations going forward.

AUD/USD in for some consolidation

AUD/USD is coming under some pressure and venturing below the 0.96 level, with China concerns keeping the AUD bulls at bay. While we think the concerns are overdone, they are certainly enough to warrant some profit-taking on longs. For now, I expect to see some consolidation around 0.96.  

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