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By XE Market Analysis August 6, 2013 11:53 am
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    XE Market Analysis: Asia - Aug 06, 2013

    The dollar headed lower into the N.Y. session as EUR and GBP made up ground on strong data. German orders were much stronger than expected, along with U.K production data. Eurozone spread narrowing was evident after Italian GDP wasn't as bad as feared and fed a EUR move on 1.3300, while Cable threatened the 1.5400 region. A significant narrowing in the U.S. trade gap did not help the dollar though as stocks tumbled and this triggered an extended sell-off, which was exacerbated by USD-JPY liquidation as exposed longs cut positions ahead of pending event risk, which includes the BoJ policy outcome on Thursday and potential repatriation flows ahead of big bond redemption and coupon payments from next week. EUR cleared offers to 1.3320, but struggled thereafter and USD-JPY backed up.

    [EUR, USD]
    EUR-USD benefited on a USD-JPY reversal, boosting it over 1.3300. Progress on higher levels is slow due to the weight of offers from sovereign accounts from 1.3320 and outstanding real money offers from 1.3340-50, where it stalled after last Wednesday's Fed policy outcome. The EUR outlook in the next session or two is likely to come from external influences. Today's price action will encourage high frequency traders to raise bids into 1.3285-90 and 1.3265-70.

    [USD, JPY]
    USD-JPY fell from 98.20 to 97.50 in N.Y. as stock markets tumbled in the U.S. and there was also nervousness by longs fearful of getting exposed to repatriation by Japanese investors and repositioning ahead of the BoJ policy meeting. Japanese investor repatriation related to bond redemption and coupon payments may go through late this week ahead of the big payments, which kick off next week and run until the end of August. Working against the topside is also Thursday's BoJ policy meeting, where a steady hand is anticipated as PM Abe grapples with reform plans. Backing up expectations of more dollar supply are weaker technical studies amid recent topside failures and the drop to 97.80.

    [GBP, USD]
    GBP moved back to the top of the range. Cable traded just shy of 1.5395, where offers are noted ahead of outstanding 1.5400 option exposure. The upturn in GBP came after more U.K. data strength. Both industrial and manufacturing production data beat expectations by a decent margin and followed overnight strength in BRC retail sales and a pick up in Halifax house prices. U.K. data has been broadly positive ahead of tomorrow's BoE Inflation Report, which should reaffirm extended easy policy. However, the sustained recovery in U.K. activity also extinguished any lingering prospects of further stimulus ahead.

    [USD, CHF]
    CHF consolidated after it was ramped higher in thin overnight trade. A stop hunt in EUR-CHF was noted under 1.2300 as a large Swiss account successfully extinguished 1.2275 option barriers. However, rather than seeing it as a sell-opportunity buyers have increased their interest and EUR-CHF recoiled over 1.2320.

    [USD, CAD]
    USD-CAD drifted higher after it bottomed out just under 1.0350 during early Europe on Tuesday. Bids that were widely noted under 1.0350 on Monday held the downside and it moved higher as stocks faltered in Asia and showed limited upside. The move out of CAD$ is also in line with the technical backdrop, which has pointed to higher levels since late last week. However, Monday's move into 1.0400-05 met very good resistance and it may struggle to sustain the uptrend unless this is overcome.

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