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By XE Market Analysis July 11, 2013 3:39 am
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    XE Market Analysis: Europe - Jul 11, 2013

    The dollar plunged and stocks surged after the FOMC minutes and dovish comments from Fed Chairman Bernanke shut the door on Fed policy tapering expectations. USD-JPY fell back from over 100.50 in N.Y. and losses extended from 99.60 to 98.25 in Asia. The BoJ left policy unchanged as expected and also upped its assessment on the economy, which will weigh on expectations for more policy stimulus. Japanese May core machinery orders jumped 10.5% m/m, which was much stronger than expected. Australian jobs data rose 10.3k, which defied expectations for a negative reading, though the gains came mainly on part time jobs and the unemployment rate reached its highest level since September 2009 at 5.7%. Meanwhile, the latest Japan MoF flow data revealed Japanese investors were netbuyers of foreign bonds.

    [EUR, USD]
    EUR-USD surged through 1.3000, 1.3100 and 1.3200 in the first hour of Asia trade as large dollar long positions were cut back and heavy stop loss activity went through. After it reached 1.3207 highs selling pressure picked up and it retraced a move back into 1.3100 and then 1.3070, where more demand lifted it back towards the 1.3150 region. The frenetic trading session eventually saw profit taking go through from intra-day accounts and it headed back into the 1.3050 area after the European open.

    [USD, JPY]
    USD-JPY fell sharply over the FOMC minutes and then extended losses in Asia after dovish comments from Bernanke. There was heavy two way flows though. After it traded to 98.25 it bounced back to 99.60 amid heavy demand from importers. However, large selling re-emerged as the BoJ left policy unchanged and upped its outlook on the economy, which reduces expectations for more stimulus. Japan core machinery orders also jumped 10.5% m/m and 16.5% y/y. Dollar supportive flows were noted around 98.25 in late Asia ahead of the bottom of the Ichimoku cloud around 98.15, which protected more sell stops through 98.00.

    [GBP, USD]
    Cable also got caught up in the frenetic action in Asia and surged towards the 1.5200 region. Profit taking by Asian accounts forced a move back into 1.5120 and when Europe open there was more follow through selling to 1.5075. The short term picture will shift to a buy on dips strategy in the near-term, with moves between 1.5050 and 1.5000 expected to provide support.

    [USD, CHF]
    USD-CHF plunged towards the 0.9400 as the FOMC minutes and Bernanke removed doubt over the Fed policy outlook. A dollar correction has been underway since late Asia as profit taking goes through and short term momentum studies correct oversold levels, which has elevated USD-CHF back over 0.9500. Macro fundamentals in the U.S. may still encourage dollar dip on demand, but the upside is likely to be more limited than it was. We anticipate supply from 0.9550 to 0.9600.

    [USD, CAD]
    USD-CAD losses extended to 1.0325 in Asia amid heavy dollar selling. Good bids put a floor in place into the European open and dollar corrected from oversold levels carried it back through 1.0380. USD-CAD may run into selling pressure on moves into 1.0400 and 1.0420 initially as the short term technical picture shifted dramatically on the Fed and Bernanke.

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