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By XE Market Analysis August 9, 2013 2:18 am
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    XE Market Analysis: Europe - Aug 09, 2013

    It was a quiet session as the G10 FX consolidated Thursday's moves. The dollar extended lower on broad based selling, which lifted EUR close to 1.3400. In Asia, USD-JPY was the main mover after large bids at 95.80 put a floor in place on Thursday. It entered the N.Y. close above 96.50 and extended to 96.97 highs during the Asia morning. Thereafter, it headed lower as weakness in the Nikkei weighed on the intra-day tone. The AUD rebound from under 0.9000 to 0.9130 on Thursday ran out of steam after RBA trimmed its growth forecast and said it would remain below trend until mid-2014. There was some encouragement in the region as China CPI and PPI data indicated that inflationary pressures are more subdued, which followed yesterday's better than expected trade data.

    [EUR, USD]
    EUR-USD consolidated Thursday's rally, leaving it close to the 1.3380 area. The EUR traded as high as 1.3401 and then drifted lower as very strong offers put a top in place. Sovereign names were active on the way up yesterday, while real money and U.S. corporate flows have been cited. The short term trend is skewed to a push on the double top from June 18-19 at 1.3415-20 still, though gains are likely to be slow given the rising risk of Fed policy tapering in September.

    [USD, JPY]
    USD-JPY experienced a modest short covering rally after it closed out the N.Y. session above 96.50 versus a 95.81 low. Offshore demand helped the pair back towards 97.00 as the Nikkei attempted a minor rally. However, gains were short lived as the Nikkei struggled and intra-day longs cut positions, leaving USD-JPY under 96.50 during the Asia afternoon. The dollar pairing is likely to remain choppy intra-day, though the short term trend is in favour of selling into strength as orders under 96.00 attract. There are still very good bids into 95.80, which are protecting a congestion of sell stops lower down.

    [GBP, USD]
    Cable consolidated the rally, which extended to 1.5574 on Thursday and forced more pain on long-term shorts. Carney clarified the BoE's position on guidance via a BBC radio. He said it was about achieving the inflation target in a balanced and responsible way and policy will be guided by what happens on the ground. Carney said it has provided the maximum amount of transparency to secure the recovery. Markets reacted sceptically to the contingencies in the new guidance, linked to inflation and both money market rates and sterling rose sharply. However, it wouldn't surprise us to see Carney take the opportunity to push back against an "unwarranted rise in rates" again at some point if this move continues.

    [USD, CHF]
    CHF struggled to sustain easier levels despite Thursday's stock rally, which was a symptom of dollar weakness. A USD-CHF move through large bids at 0.9190 triggered stops after the London close and it headed into 0.9175. This forced EUR-CHF from 1.2315 back below 1.2300. USD-CHF ran into a round of support from 0.9175 and is trading close to 0.9200, but the dollar picture is looking quite weak, although often into the weekend moves from recent sessions are reversed to a degree.

    [USD, CAD]
    USD-CAD remains heavy after it to 1.0305 lows on Thursday. There was talk of London fixing flows and it extended lower after European accounts headed for the exit. It looked as if some names were taking the opportunity to close out weak long positions ahead of today's Canada job report as a series of short term support levels gave way. Once 1.0350 gave way bids between 1.0340 and 1.0320 were quickly filled. It has backed up a touch towards the 1.0330 area, where short term accounts have been trying to sell into strength. This pair should remain limited though until the jobs report is released later today.

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