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By XE Market Analysis July 4, 2013 3:02 am
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    XE Market Analysis: Europe - Jul 04, 2013

    FX markets are in a holding pattern ahead of today's policy outcome from the BoE and ECB. Both central banks are expected to keep policy unchanged, but the ECB is likely to be more of a market mover amid the accompanying press conference from Draghi. He is likely to reiterate the ECB's accommodative policy stance, which may be timely given the rising eurozone risks this week. New BoE Governor Carney is expected to bring in explicit forward guidance to reduce uncertainty. GBP has been under a sustained bout of selling pressure of late in spite another set of encouraging data releases this week, but bounced back on Wednesday after services sector PMI strength. Meanwhile, USD-JPY's uptrend was damaged by yesterday's sharp drop and is now running into selling pressure on upticks over 100.00. The CHF is edging lower as stock markets recovered some ground overnight, while AUD is underpinned after RBA deputy governor Lowe said remarks from Stevens were reinterpreted yesterday and this reduced rate cut expectations in Asia.

    [EUR, USD]
    EUR-USD started the session close to the 1.3000 region and headed into 1.3020 early on. However, follow through was limited by EUR-JPY supply and a general lack of interest in low volumes ahead of today's ECB outcome. Liquidity was also compromised a bit by today's U.S. Independence Day holiday and ranges are likely to remain on the tighter side during the European morning session.

    [USD, JPY]
    USD-JPY met selling pressure on upticks after the yesterday's break lower undermined the uptrend. It met selling pressure into 100.00, while weekly Japanese flow data also reduced interest for yen-funded carry trades. USD-JPY was supported into the 99.70 region by Japanese importers, but the upside is likely to remain limited between 100.00 and 100.30 amid a congestion of fresh offers that were placed on Wednesday. There was no reaction from the latest comments from BoJ Governor Kuroda, who reiterated the BoJ policy stance and vowed to maintain easy policy till the CPI target was reached. Kuroda also said that the economy was picking up and it would resume a moderate recovery.

    [GBP, USD]
    GBP consolidated in the mid 1.52 area following yesterday's strong rally, which took Cable up from 1.5130 to highs just over 1.5300. Sterling outperformed in the wake of U.K. service sector data strength and concluded another clean sweep of forward looking data, which bodes well for the growth outlook. Cable did reach the limits of how far it can rally ahead of key event risks and it isn't surprising to see a modest correction. EUR-GBP also moved into the 0.8480 area, where corporate accounts have been very active over the last week and it traded back over 0.8520.

    [USD, CHF]
    USD-CHF is consolidating ahead of 0.9450 in quiet trade. On Wednesday, it faltered in unison with the EUR-USD spike up, trading under 0.9445 after finding N.Y. sellers into 0.9500. Rumors of further SNB measures to defend the EUR-CHF floor made the rounds, though sources said the talk was "dubious". The CHF found some safe haven support on the back of Egypt and Portugal problems, though EUR-CHF was underpinned ahead of 1.2300 and remains safely above the SNB's line in the sand.

    [USD, CAD]
    USD-CAD was rangebound overnight, moving inside about a 1.0500-30 band for the most part after it was unable to force a break in either direction. On Wednesday, it continued to move selling pressure on upticks, leaving it off highs from earlier in the week. Offers are still lined up from 1.0580 to 1.0600 barriers, with large stops seen in place over the figure. Positions were kept reined in front of the ECB meeting tomorrow, and the twin U.S./Canada employment reports on Friday.

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