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By XE Market Analysis July 31, 2013 4:31 pm
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    XE Market Analysis: Asia - Jul 31, 2013

    The dollar rallied in morning trade, then pulled back to opening levels ahead of the FOMC announcement. The greenback got an early boost from a much higher than expected preliminary Q2 U.S. GDP reading (though Q1 was revised sharply lower), and in-line Q2 ECI, and slightly softer Chicago ISM print. USD bulls threw in the towel in late morning, on the threat of a dovish Fed statement. The dollar moved initially lower after the FOMC statement, though quickly bounced back to pre-announcement levels. The takeaway from the headlines was dovish at first blush, though with September still in the cards for The Taper, dollar buyers quickly stepped in. EUR-USD popped over 1.3335 from 1.3275 before heading back to 1.3275, as USD-JPY dipped to 97.78 from near 98.20, then rallied back to 98.15. Later, dovish tweaks to the statement, which were apparently initially overlooked, took the greenback back to session lows. Taper or no taper?

    [EUR, USD]
    EUR-USD trade lower after the better Q2 GDP print, though the sharp downward revision of Q1 growth threw a wrench into the works. EUR-USD printed 1.3207 lows, down from 1.3250. The pairing gave back its early gains in late morning, moving back to opening levels, edging toward 1.3270. The FX market appeared to be pricing out concrete FOMC taper talk this afternoon, with skepticism running high the Fed will change course for now. The initially dovish FOMC headlines saw large stops above 1.3300 triggered, resulting in a move to 1.3337. Euro sellers quickly returned however, as the market realized a September Fed taper may still be on the table.

    [USD, JPY]
    USD-JPY touched 98.63, up from 98.15 after the U.S. GDP data, then turned sideways on either side of 98.25 into the FOMC announcement. The pairing dove to 97.78 lows after the Fed, dropping from near 98.25. As dovish sounding details buried inside the FOMC statement surfaced however, USD-JPY headed lower again,. as U.S. yields dipped, and Wall Street rallied.

    [GBP, USD]
    GBP has been a notable underperformer so far this week into the BoE meeting, dropping from levels just above 1.5400 on Monday to a 1.5125 low on Wednesday. The market is pricing in the formal adoption of forward guidance at the BoE's meeting this week (Thursday), which will be used as a rhetorical method of better managing market expectations about the eventual exit from loose monetary policy settings. We expect the BoE will leave the repo rate and QE total unchanged while to announcing forward policy guidance.

    [USD, CHF]
    USD-CHF remains in a bear trend, with a clear two-week trend line resistance coming in at 0.9304 and trend target of 0.9220. Switzerland's KOF economic barometer came in above expectations at 1.23 in July, up from 1.15 in June (revised slightly lower, from 0.16). This is the fourth consecutive month that the indicator has improved, signalling improving economic momentum over the next six months.

    [USD, CAD]
    USD-CAD moved over 1.0335 after the combination of better U.S. and slightly light Canada GDP data, rallying out of 1.0310. This marked the highest levels since July 23. Initial resistance was seen at 1.0350 (July 23 peak), and stops were noted above the level. Corporate buying interest was reportedly building under 1.0300, which supported into the FOMC announcement. Following its initial drop to 1.0260 from 1.0290, the pairing bounced over 1.0290, before sliding to 1.0247 lows on renewed fears of no Fed tapering in the near term.

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