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By XE Market Analysis August 22, 2013 2:47 am
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    XE Market Analysis: Europe - Aug 22, 2013

    The dollar traded on a firmer footing in the wake of the FOMC minutes. The Fed was mixed on timing, but intends to taper at some point. However, the lack of clarity resulted in more pressure on Asian stocks and this weighed on risk appetite early on. Sentiment improved during the Asia afternoon after China HSBC flash manufacturing PMI came in at 50.1 in August from 47.7 in July. USD-JPY cleared the 98.00 level as 10-year yields moved up to 2.92% from 2.89% at yesterday's N.Y. close. AUD-USD fell to 0.8930 early on amid fund selling as emerging Asia FX remained under pressure, but then surged to 0.9000 on China. EUR and Cable were capped due to underlying USD firmness amid the pick up in U.S. yields.

    [EUR, USD]
    EUR-USD met selling pressure on upticks following the FOMC minutes. The 1.3400 level held during Wednesday's N.Y. session and it headed to 1.3335. In Asia it edged out lows of 1.3331 as the USD responded to the pick up in yields. However, there are still very good buy orders towards 1.3300-10, which have held since the start of the week. Sources have tipped a combination of real money flows going back into some Eurozone asset markets and underweight European corporate hedging was also tipped in the last 24 hours.

    [USD, JPY]
    USD-JPY triggered stops at 98.00-10 and moved up to 98.30 amid underlying dollar strength. Early demand was noted from Japanese names and there was good interest from funds as U.S. yields firmed up after the FOMC minutes. Speculative accounts also took encouragement from the pick up in China PMI. USD-JPY wasn't heavily influenced by further outflows in emerging Asia FX, though there could be some speculative money that moves out of Southeast Asian currencies into JPY in the coming sessions. So far, most of the pressure in regional currencies has tended to weigh on AUD and NZD, which reflect the potential risk to growth.

    [GBP, USD]
    Cable pulled back sharply from the 1.5700 region and extended to 1.5590 overnight on dollar buying interest. However, the correction was exacerbated by comments from BoE's Weale. He told the Telegraph that he could certainly envisage circumstances in which it would be sensible to undertake further asset purchases. He said it remains a tool available if the economy needs further support. Weale was the only MPC member that was opposed to forward guidance. Cable should find buyers on dips amid better fundamentals, but the persistent upturn in GBP may have left some two-way risk now and playing the range may be the more favourable strategy. Offers are seen into 1.5670 and 1.5700. There is near-term support at 1.5580 and 1.5550-60.

    [USD, CHF]
    EUR-CHF maintained firmer levels. The FOMC minutes boosted USD-CHF back towards 0.9240 and this benefited EUR-CHF despite equity market weakness. The cross has cleared 1.2330 early on, but there are a band of offers near 1.2350, which could cap. USD-CHF sellers are noted from 0.9250 and there is still good resistance ahead of 0.9300.

    [USD, CAD]
    USD-CAD extended gains in Asia.A firmer dollar tone and more pressure on the commodity bloc currencies lifted it to 1.0500, which were its best levels since July-10. Risk aversion, softer energy prices, and concerns over central bank stimulus withdrawal have all weighed on the CAD this week. It is now at levels though where decent supply should emerge. As well as, outstanding option related hedging there is good resistance and corporate hedging noted.

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