Dollar and Yen Finish Strong, Euro Plunges

The dollar and yen were easily the top forex performers on Friday while the euro limped to a second consecutive weekly drop despite better-than-expected GDP numbers. Risk aversion was the dominant theme in the market as European officials struggled to find solutions for Greece.

In European trading, the euro gained nearly 150 pips on strong GDP data but worries about Greece reversed that trade, sending EUR/USD down nearly 250 pips from its highs. Die Welt reported on a rift among European policymakers on how to deal with Greeces debt burden. The European Commission, IMF and Germany are said to back a debt extension with the ECB and France opposed. Meetings are scheduled for the weekend and uncertainty led to position squaring.

Aside from continuing eurozone debt fears, there was no catalyst for the risk off environment. This suggests positioning and seasonality were drivers in the move that sent stocks about 1% lower. Economic data was benign to positive. US CPI was in line with the consensus at 3.1% y/y and core at 1.3%. The U of Michigan sentiment survey rose to 72.4 from 69.8 (exp: 70.0). Inflation expectations fell to 4.4% from 4.6%.

Weekly CFTC data painted a predictable picture with EUR longs cut by one-third to 61.4K and GBP longs cut nearly in half to 18.K. CAD longs were cut to 37.2K from 54.0K but AUD was only trimmed to 60.3K from 73.4K. The biggest gainer was the yen as positioning shifted from -18.8K to +13.05K.

On the week, the top performer was USD, followed closely by JPY. The Swiss franc was the worst performer, followed by EUR. Several pairs closed outside critical weekly support/resistance levels. For more, see: http://bit.ly/jFXzMZ