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By XE Market Analysis August 29, 2013 2:53 am
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    XE Market Analysis: Europe - Aug 29, 2013

    Sentiment in Asia improved after Wall Street closed in positive territory. There were no fresh developments on Syria, which enabled intra-day accounts to focus on pre-month-end window dressing. Key regional benchmarks rose and emerging Asia also experienced a better session. This enabled commodity bloc favourites AUD, NZD and CAD to firm up, while the USD held steady against the majors. There wasn't much impact from economic data releases in the region. Japan retail sales fell 0.3% y/y versus a 0.6% median, Australia Q2 capex rose 4% q/q versus the 1% median and NZ ANZ business confidence slowed to 48.1% from 52.8% previously.

    [EUR, USD]
    EUR-USD continue to hold on to the bottom of the range. Last week's low near 1.3298 remained intact as buyers emerged near 1.3310, which compared with yesterday's 1.3305 N.Y. low. It did not trade much higher than 1.3340 as USD-JPY maintained a firmer tone. Good size bids are tipped into 1.3280, protecting August-12 lows of 1.3277, where sell stops are widely tipped. On the topside there are still very good Asian sovereign orders that are protecting the 1.3400 level. This range-bound theme could potentially continue until the latter part of next week when the ECB policy meeting is due and then Friday's NFP release.

    [USD, JPY]
    USD-JPY held on to a better tone following Wednesday's N.Y. close around 97.90. Japanese buyers emerged over the Tokyo fix, but offers from 98.00 kept buy stops intact higher up and it drifted back to 97.45 during the Asia afternoon. However, a supportive dollar tone lifted it back to 97.70 by the Tokyo close. There is speculation that month-end activity could be more favorable for the dollar and may have provided some support. BoJ board member Morimoto backed more stimulus if needed and also warned against the impact from emerging markets. MoF weekly flow data saw net buying of foreign stocks and net selling of foreign bonds.

    [GBP, USD]
    Cable is steady ahead of 1.5500 following Wednesday's speech from BoE Governor Carney, where he defended the Bank's stance and put into perspective the upward move in long-term yields, stating that the main common driver is speculation that the Fed will soon reduce the pace of its asset purchases. Carney disappointed GBP shorts that were expecting him to push back hard against the rise in market rates. Carney left the option open of more stimulus if tighter conditions impacted the recovery, but was not that aggressive overall and Cable rose from 1.5430 to 1.5550 before broader USD movement influenced. Month-end flows and developments in Syria should now impact into the weekend.

    [USD, CHF]
    CHF is holding steady on risk aversion. Uncertainty surrounding the situation in Syria is limiting speculative positioning still, although equity markets have stabilised globally. EUR-CHF is trading close to 1.2300 after it met strong support into the 200-dma near 1.2275 on Wednesday. USD-CHF has rebounded to 0.9250 as the dollar buying picks up on month-end activity and general uncertainty. The dollar should be favoured into the weekend.

    [USD, CAD]
    USD-CAD has found a temporary base near 1.0470 and edged back towards 1.0500 on underlying dollar firmness. Firmer oil prices have been supportive of CAD$ in recent sessions. However, prices have eased off and this weighed on CAD overnight, leaving the broader USD tone to reassert itself on the underlying trend. Month end flows could dominate and this may enable USD-CAD to sustain movement on a 1.05 handle. Longer term players are still positioning for an eventual test of trend highs near 1.0610 from early July. Ahead of that level there is order congestion from 1.0540-50 and 1.0570-80, as well as 1.0600 barriers.

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