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By XE Market Analysis July 19, 2013 11:56 am
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    XE Market Analysis: Europe - Jul 19, 2013

    USD-JPY corrected lower to trade back into the 100.00 region, which was the catalyst for broader dollar selling and helped EUR-USD up to 1.3150. There was some positive EUR news after the Portuguese government survived a no confidence vote. AUD-USD steadied as dollar losses lifted it out of the 0.9150 area back towards 0.9200, though further gains were limited due to increased expectations of a RBA rate cut in August. It was a quiet session for data, though weekly MOF flow numbers saw investors buy the largest amount of foreign bonds, at Y1.1057 tln, since Japan embarked on aggressive easing.

    [EUR, USD]
    EUR-USD started the session just ahead of 1.3100 after it was unable to sustain yesterday's move lower. News that the Portuguese government survived a no confidence vote was a positive lead, though most of the EUR gains were influenced by USD-JPY movement. When the dollar pairing got caught long higher up it provided EUR with the catalyst to head back to the 1.3150 region. Further gains were stymied by commercial flows and an overhang of decent offers, which are expected to cap towards the 1.3180 and 1.3200 region.

    [USD, JPY]
    USD-JPY made an early run higher on good demand from Japanese importers, while specs also took heart from the latest MOF flow data, which revealed a marked pick up in demand for foreign bonds. However, after the Tokyo fix profit taking set in as the Nikkei reversed early gains and plunged more than 2.5%, leaving it around 1.5% lower on the session. USD-JPY players got caught long around 100.85 as it fell back sharply on profit taking, which filled trailing stops to print 99.80 lows. It backed up a touch into the Tokyo close to trade just in front of 100.00. Most of the adjustment in today's session was re-positioning ahead of the Upper House election, where the LDP are expected to win a strong majority, which will enable PM Abe to push through more reforms and is widely expected to boost the Nikkei and USD-JPY. However, a Reuters poll said Japan are concerned that a strong win could see Abe lose impetus to win round voters.

    [GBP, USD]
    Cable is trading back above 1.5200. After experiencing a session of consolidation it has reasserted itself on the topside as the dollar fell back in Asia. Cable should threaten levels into the 1.5250-70 region, where offers capped in recent sessions. A move into the 1.5300-30 zone would cause more pain for long-term shorts. Option expiries are likely to provide positive directional guidance as well amid strikes at 1.5250-60 and 1.5300 today.

    [USD, CHF]
    CHF consolidates at easier levels. EUR-CHF is trading close to the 1.2375 area as EUR is being supported by light dollar outflows since the Asia open. USD-CHF eased off the 0.9450 area as a result and is trading close to the 0.9420 area. However, it is still expected to meet strong support ahead of the 200-dma, which propped up on Wednesday ahead of 0.9350-60. We think direct flows via the cross will still struggle due to the price chop via Eurozone bond markets. The Portugal discussions on the salvation deal are expected to run into the weekend and safety is likely to be favoured.

    [USD, CAD]
    USD-CAD has spent time under 1.0400 overnight after it was unable to sustain higher levels again on Thursday. Offers into the 1.0440 region continue to put a cap on gains and sellers have lowered some of their interest to 1.0400-20 today amid rising risk that support towards 1.0350 could be pressured into the weekend. The dollar is on the back foot on light repositioning, though with stocks putting in a more mixed performance this has the potential to weigh on CAD$ to a degree. Note also that the dovish BoC stance will likely keep CAD gains to a minimum for now.

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