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By XE Market Analysis August 8, 2013 2:36 am
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    XE Market Analysis: Europe - Aug 08, 2013

    The dollar consolidated losses in Asia, leaving EUR firmly over 1.3300, while USD-JPY remained heavy around the mid-96 region as offers at 97.00 capped. AUD-USD posted strong gains as much better than expected China trade numbers boosted the pair from 0.8970 to 0.8980. China exports rose 5.1% from a year ago and imports surged 10.9%, which was a positive for the whole region. The data enabled AUD to overcome a disappointing 10.2k drop in Australia employment. The BoJ policy outcome was a non-event as widely predicted. Policy remained unchanged ahead of government plans for fiscal and economic reform due to be revealed in September. Meanwhile, MoF flow data for July revealed that Japanese investors were the biggest buyers of foreign bonds in three years at Y3.4818 tln.

    [EUR, USD]
    EUR-USD continued to make inroads over 1.3300 as the USD maintained broadly softer levels. In Asia, there was added traction as the commodity bloc pushed ahead on China data, while USD-JPY remained heavy overall. EUR-USD opened on a strong footing around 1.3335 and edged out highs of 1.3344, largely matching last Wednesday's top. Real money are still selling into strength as Fed taper risk pushes back against short term EUR buying momentum. However, risk is rising for an extended squeeze higher, with close-to-market stops over 1.3350-60 coming into view and a potential push over 1.3400 to levels from mid-June.

    [USD, JPY]
    USD-JPY strength was sold into as the losses in recent sessions left a nervous tone. Early demand for USD-JPY and the JPY crosses was noted from real money. However, a move back into 97.00 was seen as a selling opportunity and the pair sagged back below 96.50 by the Tokyo close. The BoJ's decision to leave policy unchanged was widely expected, leaving the focus on potential government fiscal consolidation and economic reform as Japan commits to adhering to deficit reduction targets. Wednesday's plunge in the Nikkei has left a bearish overhang on the chart and with bond and coupon redemptions expected in the second half of August USD-JPY could trade at much softer levels still. There are a plethora of orders between 96.00 and 95.80 that are likely to draw an influence.

    [GBP, USD]
    GBP has held on to gains seen in the wake of Wednesday's BoE Inflation Report and presser from BoE Governor Carney. There were mixed views from analysts, but most agree that any further QE is highly unlikely. If Carney's plan was to stop money market rates from heading higher than his first post-IR presser will be judged as a failure. Short sterling traded much weaker as the new 7% employment threshold was contingent on the inflation outlook. Looking at the interest rate market the first BoE hikes are being priced in at the end of 2014 and early 2015, even though the BoE said that no tightening signals are seen until early 2016 based on current conditions. Cable is meeting buyers on dips into 1.5480 and poised to test offers from 1.5530 and barriers at 1.5550. EUR-GBP has found corporate buyers though into 0.8600 and below, though is still heavy on GBP strength.

    [USD, CHF]
    CHF strengthened on USD-CHF weakness. It topped out ahead of 1.2330 offers on Wednesday and headed back below 1.2300. The bulk of the sell off came during the N.Y. session when a USD-JPY drop forced USD-CHF through the bottom of the recent range to trade close to 0.9200. It eyes further weakness and stops are looming under 0.9200. EUR-CHF looks vulnerable amid USD-CHF moves, though positive risk appetite should limit losses to a degree.

    [USD, CAD]
    USD-CAD broke the top of the recent range amid a fall in risk assets and weak domestic data. Canadian building permits plunged 10.3% in June, though it can be a volatile release, while the July Ivey PMI slumped to 48.4 sa, which was well below the 56.0 median. USD-CAD posted the best part of its gains during the European morning as Fed policy risk boosted the dollar and worked against commodity bloc currencies due to a broad downturn in global stocks. In North America it progressed from 1.0430 to 1.0445, but very large offers at 1.0450 capped and there was predictable speculation of option exposure.

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