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By XE Market Analysis August 20, 2013 2:32 am
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    XE Market Analysis: Europe - Aug 20, 2013

    The downturn in global equity markets on Monday continued in Asia and this kept JPY and CHF supported on dips. The dollar was steady against the majors, which maintained levels close to Monday's close, while AUD and NZD fell sharply on central bank rhetoric and a negative spill over from emerging FX. INR and IDR led the decline as rising interest rates triggered capital outflows. We look for the dollar to remain fairly steady into the FOMC minutes, and the KC Fed conference in Jackson Hole.

    [EUR, USD]
    EUR-USD traded around 1.3350, which was slightly higher than Asia opening levels around 1.3335. Ranges were fairly tight overall. The move to 1.3375 highs on Monday could not overcome a heavy congestion of offers and it headed back into familiar levels. The short term trend is still in favour of a move on the topside, but long-term resistance at 1.3400-20 has so far kept the pair to range. Yesterday's move higher came after the Bundesbank said a rate hike was an option if inflation risks emerged despite ECB's policy guidance.

    [USD, JPY]
    USD-JPY was pressured by the sell-off in equity markets as deleveraging triggered unwinding of the JPY crosses. Heavy losses in AUD-JPY and NZD-JPY forced the dollar pair down to 97.30 in the last hour of Tokyo trade. There were Japanese buyers in USD-JPY on dips, however, the pair is vulnerable on the downside as most participants are limiting dollar position building ahead of Wednesday's FOMC minutes. Large bids are noted ahead of 97.00, which held late last week, while offers remain into 98.00.

    [GBP, USD]
    GBP is largely unchanged from Monday's closing levels. EUR-GBP turned away from trend lows to trade back over 0.8530. Fund demand for Cable forced EUR-GBP below 0.8515, leaving it just short of last Thursday's six week lows at 0.8505. European corporate bids put a floor in place, along with outstanding options from 0.8500 to 0.8470. The cross move gave Cable longs a buying opportunity as it backed off from 1.5675 to 1.5635 and it sits around the 1.5650 level today. The is still potential for a move on option barriers at 1.5700, though dollar interest has been fairly low ahead of Wednesday's FOMC minutes.

    [USD, CHF]
    EUR-CHF pulled back following the correction from over 1.2400 late last week on USD-CHF weakness. Two consecutive failures over 1.2425 has seen European interbank lower offers to 1.2400, though USD-CHF is still likely to be the stronger source of direction. The dollar pairing has scope for further losses following the correction from 0.9395 to Friday's 0.9215 lows. Overnight the continued rout in emerging FX also triggered more deleveraging, which left USD-CHF close to 0.9225 and EUR-CHF around 1.2320.

    [USD, CAD]
    USD-CAD extended higher in Asia. Heavy selling via AUD and NZD triggered a negative lead for CAD$. Stocks eased, along with commodities and there were significant flows out of emerging FX, which underpinned the USD tone. Against this backdrop USD-CAD rose from N.Y. closing levels around 1.0345 and moved up to 1.0375. There are offers into 1.0380 and after the recent failure over 1.0400 there are fund names anticipated into this region. Buyers are the downside are likely into 1.0330-40, where previous sell-interest was noted. Good support is seen now ahead of 1.0300.

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