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By XE Market Analysis August 23, 2013 2:09 am
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    XE Market Analysis: Europe - Aug 23, 2013

    The dollar was supported as U.S. yields remained stable. USD-JPY has been the main beneficiary as funds added long positions on the belief that central bank policy will fuel further gains. EUR was capped again on upticks as 1.3400 held during the N.Y. afternoon. The market did not react to comments overnight from ECB's Nowotny, who said that good economic news removed the need for a rate cut. GBP consolidated softer levels after it corrected on Thursday amid dovish comments from BoE's Weale. The commodity bloc currencies were mixed. AUD steadied ahead of 0.9000 after it rebounded from 0.8932 trend lows yesterday, while USD-CAD extended through 1.0540. Meanwhile, emerging Asia FX also stabilised and all regional equity markets moved higher.

    [EUR, USD]
    EUR-USD was supported by comments from ECB's Notwotny, who said that recent economic data removed the need for a rate cut. However, the EUR is still struggling to overcome a congestion of offers that were re-established earlier in the week ahead of 1.3400. The pick up in U.S. yields has also absorbed any potential upside moves, leaving EUR largely unchanged near 1.3350. More narrow price action may continue into the weekend. There has been conjecture that as market rates rise in developed economies that money is pouring back into the Eurozone, which may have been a source of support this week, while European corporate hedging was also noted. In the near-term, interim support is seen into 1.3300, while close-to-market stops remain at 1.3290 and 1.3370.

    [USD, JPY]
    USD-JPY and the JPY-crosses were boosted in early trade as retail names and funds headed for yield. Dollar demand was noted from Japanese importers and offshore funds, which cleared 99.00. Gains slowed ahead of August-4 highs at 99.15, but there was barely any pullback into the European session and it consolidated close to 99.00. EUR-JPY was boosted to 132.34 on USD-JPY demand and general cross flows. Speculative accounts were encouraged by comments from ECB's Nowotny, which suggested that the ECB are on hold and follows the recent watering down of the ECB's forward guidance by the Bundesbank. The commodity bloc currencies also had a better session as Japanese retail names piled back into AUD and NZD.

    [GBP, USD]
    Cable is underpinned around 1.5575-80 as the European session gets underway. It made a number of attempts to force a move through 1.5550 on Thursday following the drop from 1.5700. However, good bids put a floor in place and there was tentative demand from specs, no doubt front running ahead of today's second reading of U.K. Q2 GDP, which should be confirmed at 0.6% q/q. There are some accounts positioning for a upward revision after the run of better U.K. data in June. Cable is still looking fairly stable overall, but dovish comments from BoE hawk Weale late Wednesday did some damage to market psyche and GBP is no longer a one-way bet. Further dollar gains will see good stops feature on a break of 1.5550. Offers have been lowered to 1.5630-40.

    [USD, CHF]
    EUR-CHF and USD-CHF continue to trade on a stable footing. The cross is in better shape since it rebounded out of the 1.2285 area on Tuesday. It extended to 1.2360 on Thursday on a combination of better PMI data from China and the Eurozone and then USD-CHF gains as U.S. yields firmed up. Appetite to establish dollar long positions was relatively heavy from fund names after the FOMC minutes. There was also dollar related to repositioning out of emerging market currencies and USD-CHF held steady close to 0.9250.

    [USD, CAD]
    The USD-CAD upswing continued overnight and it cleared away July-10 highs at 1.0540. CAD$ had weakened earlier in the week in line with other commodity bloc currencies. However, since it broke 1.0500 Thursday it has rallied on its own steam as a wave of model fund and momentum account demand went through. USD-based macro positioning also got added backing from the weak Canadian retail sales data and there are only minor resistance levels ahead of the next psychological level at 1.0600. There is likely to be more option related flows around 1.0550 and 1.0570-80, while previous tops are noted at 1.0563 and 1.0586. The downside is underpinned at 1.0500 and 1.0475-80.

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