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By XE Market Analysis August 1, 2013 2:52 am
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    XE Market Analysis: Europe - Aug 01, 2013

    The dollar is supported overall as market participants digested the Fed policy statement. On balance the market judged that Fed policy tapering was still on for September if data continues to improve. EUR pulled back from the 1.3300 region and traded through 1.3270, while USD-JPY saw good buying interest from 97.70 and traded through 98.30 during the Asia afternoon. AUD-USD maintained a bearish tilt and in early trade it added to recent losses to reach fresh trend lows around 0.8925. China PMI data did not provide a significant lead for the Asia market. However, the HSBC/Markit reading fell to 47.7 in July from 48.2 in June as expected. There was mild relief, isolated to the equity market, when the official reading rose to 50.3 in July from 50.1 in June.

    [EUR, USD]
    EUR-USD pulled back from the 1.3300 region in early Asia and traded through 1.3270 on dollar buying. USD-JPY strength was the catalyst for broader dollar moves. There were a couple of dovish tweaks in the Fed policy statement, which tempered heavier dollar demand, but overall the Fed neither opened or closed the door on policy tapering. After yesterday's strength in U.S. GDP and ADP there are still expectations that the Fed may adjust policy. The focus turns to Eurozone PMI data early on and then ECB policy. It will also try to assure markets that a policy exit is still a long way off. Since the ECB embarked on unofficial policy guidance it initially fell to 1.2755, but comments from Bernanke thereafter saw the EUR reasserted itself on the topside. The ECB will be keen to reiterate the policy stance from early July and may cap the EUR upside.

    [USD, JPY]
    USD-JPY posted a decent rally. Most of the dollar gains came during the Asia afternoon. Buying picked up after the Tokyo fix as the Nikkei rallied on earnings. This encouraged speculative accounts, although a strong macro influence featured. The break back above 98.00 triggered buy stops and follow through action carried it to 98.35. USD-JPY has looked quite bearish in recent sessions after last week's break lower and subsequent move through 98.00. However, it has maintained support ahead of 97.50 and with U.S. data still holding up long-term dollar bulls may still see value at current levels.

    [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 after it broke a series of support levels in the 0.9265-70 region on Wednesday. It posted kneejerk lows of 0.9230 in the wake of the Fed policy statement, but has backed up to the 0.9285 region as the dollar found a modicum of support. The underlying trend is still skewed to softer levels. However, today's ECB policy statement will drive movement before the broader dollar tone reasserts itself on Friday when NFP data is due.

    [USD, CAD]
    USD-CAD stabilized following Wednesday volatile action. After the fallout over the Fed policy statement USD-CAD has reverted to levels that were seen prior to yesterday's U.S. and Canada GDP releases. The 1.0300-10 area is now being capped by short term offers, while there are more prominent orders seen into 1.0350, which is the July-23 peak. Buyers are noted from 1.0260 and under 1.0250, which marked the bottom of the range on Wednesday.

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