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By XE Market Analysis July 5, 2013 2:34 am
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    XE Market Analysis: Europe - Jul 05, 2013

    The impetus for Asia FX came from yesterday's BoE and ECB rate decisions. Both banks left policy unchanged, but decided to move to forward policy guidance. EUR and GBP maintained a heavy tone after they fell sharply to carve out five week lows against the USD. The decision by both the ECB and BoE may take on even greater relevance if the U.S. NFP reading comes in on the firmer side today. The debate over Fed policy has raged and even though the Fed has tried to push back against market expectations the market has lost some of the optimism it had. Elsewhere, USD-JPY benefited from underlying dollar strength and traded towards 100.50. AUD-USD was stable around 0.9130 at the close, which compared with yesterday's 0.9181 highs and new trend lows of 0.9036 set late Wednesday.

    [EUR, USD]
    EUR-USD remained heavy throughout the Asian session following yesterday move under 1.2900 for the first time since the end of May after ECB's Draghi said policy would remain accommodative for an extended period of time and left the door open for further rate cuts. EUR tested the 1.2880 region on Thursday and headed back into 1.2888 lows in Asia, but EUR has seen a few buyers re-enter just below 1.2900. There are some minor support levels around 1.2880, which are protecting stops ahead of larger support levels at the 1.2840-50 region.

    [USD, JPY]
    USD-JPY was supported by Japanese importer demand and general dollar firmness ahead of the NFP data. Yesterday's plunge in EUR and GBP provided the USD with a default bid, while JPY also saw light speculative selling as stocks responded positively to yesterday's central bank policy statements. USD-JPY firmed up from the 100.00-05 region early on and cleared away offers up to 100.45. Offers from 100.50 capped further gains and the pair drifted back into the 100.25 region, where it remained into the European open. There is supportive interest noted on dips, though on the downside, there are a build up of stops from 99.50 to 99.20. Longs eye a push through the top of the Ichimoku cloud around 101.20.

    [GBP, USD]
    GBP also maintained a heavy tone in Asia and experienced an early push into 1.5028 trend lows after the BoE also issued a dovish statement to guide policy ahead. This was widely expected to be one of the changes that the new governor Carney would put in place when he took over his role. There may be scope for some correction action from here, but bears will have 1.5000 in their sight today.

    [USD, CHF]
    CHF fell as risk appetite improved after policy decisions from the BoE and ECB. EUR-CHF traded out of the 1.2300 area and extended through 1.2360 on sharp dollar gains. The dollar pairing carved out highs of 0.9585 after the EUR dropped sharply over the ECB press conference, which suggested that policy will remain accommodative for an extended period of time and also opened the door to another rate cut if needed. EUR-CHF should maintain a supportive tone, though it has met strong offers into the 1.2370-80 area in recent sessions and could drift lower ahead.

    [USD, CAD]
    USD-CAD is supportive on a 1.0500 handle, leaving it inside the familiar trading range. On Thursday, CAD$ rallied in line with the other commodity bloc currencies as risk appetite was boosted by dovish policy rhetoric from the BoE and ECB. USD-CAD has struggled over 1.0550 of late due to large fund offers and outstanding option barriers at 1.0600. However, the underlying dollar trend encouraged demand from model funds and USD-CAD has drifted back to the 1.0525 area.

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