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By XE Market Analysis July 18, 2013 2:53 am
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    XE Market Analysis: Europe - Jul 18, 2013

    The dollar was led higher overnight by a USD-JPY rally back over 100.00. Bernanke's testimony on Wednesday's was a positive for risk appetite and encouraged speculative positioning, though interest was still relatively tight versus EUR, GBP and the commodity bloc currencies. EUR remained around the 1.3100 after it was unable to sustain higher levels. AUD headed lower on fresh short positioning. It was a quiet session for economic data. Australia NAB Q2 business confidence index came in at -1 and current conditions fell to -4, which compared with +2 and -3, respectively. New Zealand job ads came in flat in June versus May's -1.7% m/m drop, leaving the y/y rate at 0.7%. Meanwhile, S&P also affirmed Australia's AAA rating and the outlook remains stable.

    [EUR, USD]
    EUR-USD traded back below 1.3100 as the dollar remained on the firmer side overall. EUR-USD's inability to clear the 1.3200 level on Wednesday encouraged short term accounts to fade the rally. In Asia, USD-JPY's firm tone was a slightly negative lead for EUR-USD and it ran into offers into the 1.3125 region. There are still buyers keeping the range tight just under 1.3100, but yesterday's close under 1.3100 may result in sideways to lower movement today.

    [USD, JPY]
    USD-JPY found buyers on dips as a rise in equity markets fueled fresh long positioning. An early dip into the 99.45-50 region met hedge fund demand, while importers were also decent dollar buyers again and it cleared large 100 offers to reach the 100.20 area. The rise in risk appetite lifted EUR-JPY over 131.00. Asian sources said that some positioning was being put on in the weekend Upper House election, where the LDP is expected to secure a very strong majority, which will enable PM Abe to push forward with reforms to support the economic recovery.

    [GBP, USD]
    GBP has consolidated Wednesday's gains. Cable is trading close to 1.5175 after basing in N.Y. at 1.5150 after the Bernanke testimony and Q&A. In Asia, it met selling pressure on upticks as the dollar firmed up. GBP does look set for a period of outperformance though following yesterday's BoE minutes and further signs that the U.K. economy is sustaining a recovery. The MPC voted unanimously to keep both the bank rate and the current QE level unchanged. Fisher and Miles changed their vote on the need for bond purchases and Carney voted for unchanged policy. The MPC will discuss alternatives to QE in the coming month, adding that the task was to ensure stimulus and not to withdraw prematurely. The BoE said the guidance in the July statement was intended to ensure there was no premature tightening.

    [USD, CHF]
    CHF is trading at slightly easier levels as USD-CHF posted a small recovery. The dollar pairing fell to 0.9360 lows on Bernanke, but the 200-dma held and the pair headed back over 0.9400 and extended to the 0.9440 region. EUR-CHF has rallied as a consequence of USD-CHF gains and is now trading around 1.2370 from the 1.2325 region. Firmer equity markets should leave the CHF on the softer side in the European morning. The Swiss trade surplus also came in at a stronger than expected CHF 2.73 bln outturn and another positive for the Swiss economy.

    [USD, CAD]
    USD-CAD is supported ahead of 1.0400 as the dollar found fresh buying interest overnight. USD-CAD is in neutral territory currently. Strong bids at 1.0350 kept the downside in check, but the Bernanke testimony has been mildly positive for risk appetite, which has supported stocks and in turn CAD$. Close-to-market offers at 1.0450 are still intact and unless these are cleared away USD-CAD looks likely to run of steam on the topside.

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