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By XE Market Analysis August 5, 2013 12:01 pm
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    XE Market Analysis: Asia - Aug 05, 2013

    Activity was low during the N.Y. session following limited interest in Europe. EUR reversed course after 1.3300 held again due to persistent offers from an Asian account and good outstanding option positions. The dollar also found support from the U.S. ISM non-manufacturing index, which came in on the strong side. EUR dipped under 1.3240 on the release, while USD-JPY firmed up through 98.50 and got added traction as IMF called for more policy stimulus from the BoJ if inflation does not pick up. The BoJ are seen on hold this week. Elsewhere, GBP gains moderated into the London close, leaving EUR-GBP just shy of 0.8650 versus 0.8631 lows and Cable reverted to 1.5320 versus a 1.5378 peak, which was seen in the wake of very strong U.K. services sector PMI data.

    [EUR, USD]
    EUR-USD longs turned positions on a 1.3300 failure. Large offers emerged from an Asian sovereign around 1.3300 in the European morning and option selling was tipped into the N.Y. open amid large expiries at 1.3300 and 1.3250. EUR-GBP selling was a factor after the surge in U.K. services sector PMI and this influenced in lethargic European trade. The persistent failure to move over 1.3300 will keep alive hopes for a EUR downturn and there may be more potential amid the recent reduction in speculative shorts. According to CFTC data EUR shorts contracts were reduced to -8.5k as of last Tuesday from -27.9k previously, leaving the market on a more neutral footing. From a fundamental perspective EUR shorts are justified and hourly studies are also rolling over currently, but the daily chart still points to indecision.

    [USD, JPY]
    USD-JPY moved back over the 98.50 level versus intra-day lows around 98.30. The better than expected U.S. ISM non-manufacturing data provided support and there was a brief period of demand after comments from IMF called for more policy stimulus from the BoJ. However, the upside may be limited and there is potential for a move on last week's lows just ahead of 97.50 into the BoJ policy decision later this week. An unchanged policy stance is widely expected while PM Abe works on economic reform plans, which will be detailed in September. The outcome could have a bearing on the JGB market and this should keep the BoJ sidelined for now.

    [GBP, USD]
    GBP consolidated gains during the European afternoon and N.Y. session. After reaching the 1.5380 area following the strong U.K. services sector PMI reading it slowly gave back most of its gains. Dollar supportive flows in the N.Y. session left Cable close to 1.5320 at the London close. However, it should still hold up relatively well as recent U.K. data reinforced expectations that the U.K. is now experiencing a sustained recovery. The recent upturn in U.K. activity will leave the BoE on hold for the foreseeable future, but it should maintain that easy policy will remain when it provides more details on formal policy guidance on Wednesday.

    [USD, CHF]
    EUR-CHF consolidated close to 1.2350 and USD-CHF traded around 0.9300 in quiet trade. EUR-USD's inability to sustain a move over 1.3300 enabled USD-CHF to firm up from 0.9275 back over 0.9300. EUR-CHF recovered, trading out of 1.2325 to 1.2355. The EUR-CHF outlook will depend on USD-CHF progress. However, it's inability to push through 1.2400 on Friday has left a heavier tone and it should meet fresh offers on upticks.

    [USD, CAD]
    USD-CAD moved within a narrow range with Canadian markets closed for a public holiday. Friday's price action immediately after the U.S. NFP was a positive indicator for USD-CAD in the near-term. It pulled back from 1.0400 to 1.0340, but still closed out the session at 1.0393, right over option expiry territory. Strikes matured at 1.0395-00 today and there are reportedly more to go tomorrow and Wednesday. USD-CAD dip buying should persist and there is bullish momentum as the USD makes up ground against other G10 currencies. USD-CAD stalled today into resistance at 1.0400-05, but when trading returns to normal on Tuesday it makes have scope to push back to the mid-July consolidation zone at 1.0440-50.

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