By Peter Trevor
London, May 14 (BridgeNews) - Trading was generally confined to narrow ranges in European trading on Monday as market participants refused to come out to play ahead of Tuesday's U.S. Federal Reserve interest rate decision. The exceptions were the Japanese yen and Australian dollar which both weakened in options and flow related trade respectively.
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The U.S. dollar showed little reaction to a decline in U.S. business inventories in March and an above forecast fall in industrial production in April.
Early bidding in the euro/yen cross from Asian players was picked up by a range of players and spread to the dollar/yen pair, with a Swiss bank said to be particularly active. The bidding was said to be aimed at triggering a 123.20 strike barrier option in the dollar/yen pair, though dealers said there was a range of options being targeted and defended, and that there was a steady supply of sell orders above the 123 figure. These combined to halt the dollar/yen's rise at a 13-day high of 123.17.
The euro/yen cross followed the dollar/yen higher, though ran into the buffers at an intraday high of 107.71.
The Australian dollar/U.S. dollar pair was the only other outstanding feature in an extremely dull session. Selling from a pair of London based players, took the pair off opening levels around the 0.5200 figure to a 5-day low around 0.5155. The move came despite an above forecast 10.2% month on month rise in Australian housing finance approvals in March.
The euro/dollar pair slipped to a 4-week low of 0.8730 in early trading before consolidating within a tight range extending from the low up to 0.8760.
There were no euro-zone data releases to give traders any fresh factors to trade off, though Bundesbank President Ernst Welteke, speaking at an event marking the retirement of former Bundesbank council member Hans-Juergen Krupp, reportedly said that the European Central Bank's interest rate cut of Thursday shows the Bank's independence in the face of pressure from some finance ministers. He reportedly added that euro-zone data as a whole, not regional or national factors, influence the Bank when it makes its interest rate decisions.
U.S. industrial output fell a slightly greater than forecast 0.3% on the month in April while the capacity utilization rate dipped to 78.5% in the same month. However, on a more positive note, U.S business inventories fell 0.3% in March. With the Fed's interest rate decision looming over the markets, however, the data had no impact.
Sterling traded within narrow ranges. Data which showed U.K. producer prices rose roughly in line with analysts' forecasts had little impact, as they were overshadowed by the more important release of U.K. average earnings, retail sales and retail prices data due later in the week. U.K. producer input prices rose 1.0% on the month and 6.7% on the year in April, while output prices rose 0.1% on the month and 0.5% on the year, the lowest annual increase since March 1999.
The euro/sterling cross traded between 0.6155 and 0.6180 while cable was stuck in a 1.4150-1.4190 range.
In a repeat of the pattern seen on Friday, bidding from North American players early in the U.S. session took the U.S. dollar/Canadian dollar pair through light stops above the 1.55 figure and on to a 4-week high around 1.5545. Traders are said to be unwinding long Canadian dollar positions ahead of a large Canadian bond redemption due in early June.