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By XE Market Analysis January 6, 2014 2:03 pm
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    XE Market Analysis: Asia - Jan 06, 2014

    The dollar started the Monday session on a firmer footing, though a softer than expected services ISM outcome threw cold water on the dollar, while weighing on Wall Street and tamping down Treasury yields. The negative risk backdrop, and lower yields weighed on interest rate sensitive USD-JPY, taking that pairing briefly under 104.00 from session highs of 104.84. EUR-USD meanwhile, recovered over 1.3650, after spending the early morning session on either side of 1.3600. Thursday's calendar is light, and will bring some Fedspeak, along with the November trade report. Bigger picture, we continue to look for the dollar to react positively to generally firmer data in the coming weeks (soft services ISM notwithstanding), with the first big test coming Friday with the December Jobs report.

    [EUR, USD]
    EUR-USD hung on either side of 1.3600, after ranging inside of 1.3630 and 1.3570 overnight. Option expiries at the figure kept the pairing steady through the 10:00 EST cut, the same time U.S. factory and ISM data were due. The EUR edged steadily higher after the releases and option expiry, making its way to 1.3651 highs before running out of steam. Initial resistance is seen at 1.3670-80 (Friday high), with stops above. Traders reported a relatively slow start to the first full week of the year, with volumes remaining subdued. In light of the FOMC minutes, ECB meeting, and U.S. employment report later in the week, many may be attempting to keep their powder dry for now.

    [USD, JPY]
    Japanese exporters on the USD-JPY offer from 104.90 apparently stopped the rally to 105.84. The pairing had been trading near 104.60 at the N.Y. open, and was lifted, reportedly by a U.S. custodial name. Softer U.S. data, a reversal in Treasury yields, and a softer Wall Street saw USD-JPY turn lower from there however, with the pairing moving under 104.00. There has been some talk of late of foreigners taking some money out of the Nikkei, following its stellar 2013 rally, which may limit USD-JPY losses for the time being.

    [GBP, USD]
    GBP-USD dipped to a two-week low in the wake of the U.K. service PMI disappointment, which fell to 58.8 from 60.0 to continue the deceleration from October's 16-year peak of 62.0. The pair logged a low of 1.6337, while EUR-GBP rose to a one-week peak of 0.8331. The pound recovered in N.Y. dealings however, taking cable to 1.6433 following the softer U.S. services ISM data. The bigger picture technical view is one of a flattening trend in Cable, which follows a six-month bullish market.

    [USD, CHF]
    EUR-CHF firmed up into the N.Y. open, peaking at 1.2332 before easing back under 1.2315. The SNB's Jordan said the CHF cap would be in place for the "foreseeable future" but the words had little impact, and in fact EUR-CHF eased some following the comments. 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 the jury is still out with regards to the dollar generally, and USD-CHF in particular.

    [USD, CAD]
    USD-CAD moved to intra day highs of 1.0680 in early North American trade, up from London lows of 1.0609. The pairing remained firmly ensconsed in its broad 1.06-1.07 month-long trading range, as it is hemmed in by better U.S. and Canadian economic prospects, combined with a firmer USD trend overall. Fresh barrier options are reported at 1.0700, which will likely be defended, while corporate bids are noted into 1.0600.

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