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By XE Market Analysis August 2, 2013 2:04 am
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    XE Market Analysis: Europe - Aug 02, 2013

    The dollar held on to a firmer tone following yesterday's mostly firm U.S. data releases, which kept alive the prospect of Fed tapering as early as September and also raised the risk of a better than expected NFP reading. Activity in Asia was relatively low due to the pending data risk. EUR moved across 1.3200, but saw no follow through. USD-JPY was buoyed by the pick up in U.S. yields and the global stock rally, which carried it to 99.70. In Australia, softer than expected PPI data was the catalyst for more AUD selling and it breached 0.8900 barriers. The government economic statement was also broadly negative. The growth forecast was downgraded from May's 2.75% reading to 2.5% for 2013/14 and the budget deficit was now seen at A$30.1 bln from A$18 bln previously.

    [EUR, USD]
    EUR-USD moved either side of 1.3200 following yesterday's dovish stance from the ECB and U.S. data strength. Movement under 1.3200 saw no follow through, which was also the case on Thursday amid short covering from range players and reports of corporate activity. EUR-USD's pullback from the 1.3300 area has dampened upward momentum and a strong NFP release could see another round of liquidation and raise the risk of a deeper correction. Large offers at 1.3300 were re-established in Asia yesterday after the post-Fed spike to 1.3345.

    [USD, JPY]
    USD-JPY started the session on a firm footing around 99.50 following yesterday's dollar gains. A decent rally via the Nikkei boosted USD-JPY to 99.70 during the Asian morning before light profit taking went through. Sentiment has turned more favourable for USD-JPY after Thursday's strong rebound out of the 97.60 area, leaving near-term risk skewed to a 100.00 test.

    [GBP, USD]
    GBP is back on the defensive. Cable is eyeing a potential push through 1.5100 amid general dollar strength and in anticipation of more details on the BoE's formal policy guidance at next Wednesday's quarterly Inflation Report. The BoE left policy unchanged yesterday, which was widely expected, but it did not release a statement. Cable posted a kneejerk rally to 1.5240, where very good selling was noted from a variety of fund names and short term accounts playing the range in anticipation of further losses.

    [USD, CHF]
    USD-CHF extended its rally towards 0.9385 as EUR-USD heaviness guided action. The ECB maintained a dovish policy stance over yesterday's ECB press conference and U.S. data strength revived the dollar bid. The USD-CHF close over 0.9360 suggests that it has now broken the recent bear trend after maintaining levels close to 0.9250 for more than a week with the exception of the post-Fed spike low of 0.9230, which has the hallmarks of a false break.

    [USD, CAD]
    USD-CAD pressed higher on broad dollar gains and broke the top of the recent range at 1.0350. Over the last week USD-CAD has formed a base around the 1.0250 region and yesterday's higher low encouraged long positioning building. The near-term risk is skewed to a move back over 1.0400, although this will depend on today's NFP release. There is no data out of Canada to digest until next Tuesday and domestic markets are closed on Monday for a public holiday.

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