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By XE Market Analysis August 16, 2013 2:44 am
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    XE Market Analysis: Europe - Aug 16, 2013

    Markets remained defensive into the weekend, which kept JPY and CHF underpinned. However, the USD traded on the softer side as longs liquidated positions in thin conditions after yesterday's European close. USD-JPY was capped by very large option expiries that are rolling off later today, while EUR was steady around 1.3350 and AUD traded close to 0.9150. Yesterday's rise in bond yields, including Treasuries, weighed heavily on stocks and this unnerved dollar longs. However, recent trading ranges are still intact and short term funds may have been responsible rather than fresh long term positioning being put on. Markets are likely to remain in a state of flux until the Fed policy outcome in September, where tapering is now widely expected.

    [EUR, USD]
    EUR-USD traded a fairly tight range close to 1.3350 following the sharp reversal from a 1.3205 base. U.S. markets lost their nerve on Fed policy speculation and dollar longs liquidated in thin trade. The EUR upswing extended to 1.3360-65 by the N.Y. close, where very large Asian account offers capped further gains. Movement in Asia was narrow and there was talk of a large 1.3350 expiry, which reduced activity for the majority of the session.

    [USD, JPY]
    USD-JPY reversed from 98.65 highs in N.Y. to close just in front of the 97.00 area. In Asia, very large bids put a floor in place and there was speculation of gamma related activity amid very large expiries rolling off between 97.00 and 99.00 for today's N.Y. cut. The Nikkei was weaker on the session following yesterday's global meltdown in stocks as bond yields surge, but a very strong rally across the SSEC dampened deleveraging and USD-JPY posted a short covering rally to 97.70. Further upside momentum ran out of steam and more range bound action looks likely as large option expiries encourage selling pressure on upticks. Yesterday's volatile moves could also force a large majority of accounts to the side line.

    [GBP, USD]
    Cable consolidated Thursday's strong gains, which came on more firm U.K. data and dollar long liquidation. Cable managed to reach 1.5650 highs during the N.Y. session, but has pulled back a touch to start the London open around 1.5620. Yesterday's move higher came in tandem with a pick up in sterling rates and bond yields after U.K. retail sales beat expectations by a wide margin. The rise in sterling has been broad based despite the BoE embarking on forward policy guidance, which at the moment looks out of sync with fundamentals.

    [USD, CHF]
    EUR-CHF is consolidating around 1.2375 as longs threw in the towel on Thursday. USD-CHF failed to clear 0.9400 and plunged to the 0.9250 area, while the cross gave back all of its recent gains to trade from 1.2435 back to 1.2337 lows. Thursday was the second consecutive session that EUR-CHF failed to sustain higher levels and candlestick traders will note that on the daily chart it marked another "gravestone doji" and signals a potential turning point. Bids at 1.2330 are tipped, but on an intra-day basis we anticipate selling pressure towards 1.2400 now.

    [USD, CAD]
    USD-CAD touched 1.0365 highs after the better U.S. jobs data, though quickly pulled back to 1.0325 opening levels. The pairing meandered in a tight range through the morning, and eventually headed to 1.0305 lows as the USD turned broadly lower. Standing bids at 1.0300 gave way in Asia and it hit 1.0294 lows. However, once light stops were filled USD-CAD turned back to 1.0310.

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