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By XE Market Analysis July 4, 2013 11:23 am
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    XE Market Analysis: Asia - Jul 04, 2013

    The impetus for FX markets came from the BoE and ECB rate decisions. Both banks left policy unchanged, but decided to move to forward policy guidance. EUR and GBP fell sharply to carve out five week lows against the USD as it benefited from a default bid. The decision by both the ECB and BoE may take on even greater relevance if the U.S. NFP reading comes in on the firmer side. The debate over Fed policy has raged and even though the Fed has tried to push back against market expectations the market has lost some of the optimism it had. Other good movers included the commodity bloc currencies, which jumped on firmer equity markets.

    [EUR, USD]
    EUR-USD headed below 1.2900 for the first time since the end of May after ECB's Draghi said policy would remain accommodative for an extended period of time and expects interest rates to remain at present or lower levels for an extended period of time. The EUR fell sharply from the 1.2990 region, leaving it at its weakest levels since the end of May. Draghi said the council discussed several forms of forward guidance, but it was just a coincidence that the BoE also issued guidance today. EUR has seen a few buyers re-enter just below 1.2900, possibly option related now that barriers at 1.2900 have been extinguished. There are some minor support levels around 1.2880 ahead of larger levels at the 1.2840-50 region.

    [USD, JPY]
    USD-JPY headed back over 100.00 from 99.70 as the dollar rallied following dovish rhetoric from both the BoE and ECB. Heavy losses for Cable and EUR-USD provided the USD with a default bid, though USD-JPY is struggling to clear offers from 100.00 to 100.30 that have been in place since the Asian afternoon. USD-JPY may also experience some downward pressure from the JPY crosses, which fell sharply following today's central bank policy announcements. EUR-JPY slumped from 129.70 to 128.85 and GBP-JPY fell from 152.20 to the 150.30.

    [GBP, USD]
    GBP tumbled as the BoE left policy unchanged as expected, but issued a statement to guide policy ahead. This was widely expected to be one of the changes that the new governor Carney would put in place when he took over his role. It said that the rise market interest rates may weighed on the recovery and the rise in the expected path in bank rates was not warranted by developments in the economy. Cable plunged from 1.5265 and extended through 1.5100 barriers. Over the ECB press conference it extended into the 1.5060 region, where it closed in London trade. There may be scope for some correction action from here, but bears will have 1.5000 in their sight tomorrow.

    [USD, CHF]
    CHF fell as risk appetite improved after policy decisions from the BoE and ECB. EUR-CHF traded out of the 1.2300 area and extended through 1.2360 on sharp dollar gains. The dollar pairing carved out highs of 0.9585 after the EUR dropped sharply over the ECB press conference, which suggested that policy will remain accommodative for an extended period of time and also opened the door to another rate cut if needed. EUR-CHF should maintain a supportive tone, though it has met strong offers into the 1.2370 area for the third consecutive session and may drift lower ahead.

    [USD, CAD]
    USD-CAD fell in line with the other commodity bloc currencies as risk appetite was boosted by dovish policy rhetoric from the BoE and ECB. USD-CAD has topped out just over 1.0550 after the North American open and traded as low as 1.0472 as sell stops gave way under 1.0500 and 1.0490. Local name bids put a floor in place, while the underlying dollar trend also encouraged demand from model funds, which left USD-CAD over 1.0500 into the close. Bias will remain on the topside, but offers are still lined up from 1.0580 to 1.0600 barriers, with large stops seen in place over the figure.

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