FX markets struggled for direction Thursday with traders nervous about putting on new bets ahead of Federal Reserve Chairman Ben Bernanke’s testimony later in the global day and Friday’s key nonfarm payrolls data.
Trading in the euro and commodity-linked currencies of Australia, New Zealand and Canada was choppy, with no clear trends in either direction. The main flicker of excitement came from reports that China is considering a bigger participation in the euro-zone’s bailout funds. That news pushed the euro up to a session high of $1.3193 against the buck, but the common currency failed to hold there, moving back down almost as quickly as it went up. The fleeting rally reflects concerns that while China is considering providing help, it has not made a binding commitment to invest yet.
With no new developments in restructuring talks between Greece and its private sector creditors, currency markets lacked a fresh impetus of news during Thursday’s session and therefore treaded water, in tandem with European stock markets. Even decent bond auctions from France and Spain failed to stir any reaction. With Bernanke’s testimony to the U.S. House of Representatives budget committee coming later and Friday’s all important payrolls number, traders are shying away from taking on any new positions, market participants said.
Although the market was quiet, traders remained nervous of intervention risks in two major currencies: the Swiss franc and the yen. The Swissie remains worryingly close to the Swiss National Bank’s upper limit, with the euro trading at CHF1.2050 for most of the session. The central bank is committed to preventing a slide under CHF1.20, making a fresh official sting a serious risk. Meanwhile, the JPY rose against the dollar in European trading hours despite Japan’s finance minister sharpening his rhetoric against the Japanese unit’s strengthening, saying he “can’t overlook” speculative moves in the market, and will take decisive steps if necessary. His remarks are likely to add to market expectations that the BOJ could eventually take additional easing measures to prevent further strengthening in the yen, which already stands near its all-time high against the USD. At 1151 GMT, the dollar was at Y76.115 against the JPY, compared with Y76.20.
The AUD was the other focal point after data showed the country’s trade surplus widened in December, buoyed by mining exports to Asia. The AUD shot to a fresh five-month high immediately after the data, before giving back some of the gains in European trading hours. In emerging markets, the HUF fell against the euro despite a successful 12-month treasury bill auction which saw the borrowing costs fall and the agency selling more than planned.
EasyForexNews Research Team