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By XE Market Analysis January 2, 2014 2:59 pm
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    XE Market Analysis: Asia - Jan 02, 2014

    The dollar started the New Year on a stronger footing versus the euro, as EUR-USD backed down to 1.3630 from Asian highs over 1.3770. USD-JPY held its own early on, though eventually gave back the 105.00 handle. Weak longs were pushed out of positions on the move under 105.25. Meanwhile, generally better U.S. data helped USD-CAD briefly under 1.0600, while cable stayed soft under 1.6450. Weekly jobless claims were a touch lower than expected, while manufacturing ISM and construction spending were well above consensus levels. Wall Street took a hit on the first trading day of the year, while Treasury yields slipped slightly.

    [EUR, USD]
    EUR-USD had been on the decline into the N.Y. open, and added slightly to the downside early in the session. The pairing touched lows of 1.3630 before finding support. While not likely to trade quickly lower in the coming days, we continue to see scope for further downside in the coming weeks, as divergent SCB and Fed policy paths play out.

    [USD, JPY]
    USD-JPY ran out of steam over 105.40, where talk of 105.50 barrier option defense was noted. Sellers stepped in on the move under Asia's 1.0525 lows, as weak longs stepped out of positions. The pairing touched 104.91 lows at mid-morning, though initial support at 104.80 prompted a bounce back over 105.00. Later though, as U.S. yields faded some, and as equity market losses mounted, the pairing touched 104.65 lows.

    [GBP, USD]
    Cable had been on the decline into the N.Y. open, starting near 1.6480, before touching 1.6410 lows. The sell-off started in London after softer U.K. PMI data, and continued through mid-morning in N.Y. The months -long sterling rally may have some to an end, at least for the near term, as the market rebalances itself. More stops are seen at 1.6400 now, with a break there opening the door for a test of December's low of 1.6216.

    [USD, CHF]
    EUR-CHF firmed up to start the year, taking out 1.2300 ahead of the N.Y. open. The CHF's gains in December had reflected an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to start QE tapering. We look for the cross to stabilize at levels above the SNB's worry zone, though with the dollar looking better overall, the CHF may lose some ground to the greenback.

    [USD, CAD]
    USD-CAD peaked over 1.0660 into the North American open, though eased back toward the intra day low of 1.0626 early on. The Canadian calendar was empty, and focus was on U.S. releases, where good news there appeared to have benefit the CAD. The pairing touched lows of 1.0688, though a softer risk backdrop took the pairing back to 1.0655 into the close. With both U.S. and Canadian economic prospects looking up, we expect USD-CAD to trend lower in the coming weeks.

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