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By XE Market Analysis July 26, 2013 3:39 am
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    XE Market Analysis: Europe - Jul 26, 2013

    The dollar remained heavy in Asia following Thursday's losses. In N.Y. the dollar faded on weaker than expected data. However, stocks still closed at firmer levels, though this did not carry into Asian markets, which struggled. The Nikkei fell sharply as USD-JPY broke 99.00. A firmer Japan CPI release and tension over the disputed islands with China weighed. The dollar also struggled due to a WSJ Hilsenrath piece, which suggested that the Fed was likely to consider refining its policy message and continue with the current rate of its bond buying target at next week's meeting. EUR consolidated yesterday's move on 1.3300 and Cable held around 1.5380 after it broke to 1.5435 by the N.Y. close.

    [EUR, USD]
    EUR-USD is holding firm after it threatened to break the 1.3300 into Thursday's N.Y. close as dollar losses accelerated on the Hilsenrath piece. Very strong offers emerged in Asia, but buying interest has kept the downside supported overnight and longs eye an extended push higher.

    [USD, JPY]
    USD-JPY fell back from the 99.40 area in early Asia and tripped stops through 99.00 to reach 98.70. The underlying dollar tone was already heavy due to the Hilsenrath piece, but increasing tension over the disputed islands with China added to the risk-off tone, along with firmer CPI data. The BOJ aren't expected to pullback from its current policy stance, but at the same it is also looking unlikely that it will need to provide further stimulus, which could have implications for long-term USD-JPY longs. After USD-JPY broke to the 99.70 area there was tentative demand from Japanese accounts, though it struggled to recover as offers were lowered to the 99.00 area.

    [GBP, USD]
    Dollar weakness forced Cable through the top of its recent range. Thin trading conditions into Thursday's N.Y. close triggered a Cable stop hunt through 1.5400 up to 1.5435. In Asia, a pick up in liquidity saw it pullback to the 1.5380 area. However, improving U.K. fundamentals and a bullish technical backdrop is keeping the downside supported by close-to-market bids at 1.5375-80.

    [USD, CHF]
    USD-CHF met a congestion of two-way flows either side of the 0.9300 level after dollar losses sent it to 0.9284 lows, which were its weakest levels since June-21. The clean break lower should see a build up of selling pressure on upticks. However, we are in territory where good supportive flows are noted from real money, while corporate bids have also been tipped early on.

    [USD, CAD]
    USD-CAD headed to 1.0256 lows on broad based dollar selling pressure. It posted a modest recovery back to 1.0290 in Asia. Equity markets in Europe have started on a positive footing and could also help CAD$ and selling pressure via USD-CAD should build ahead of 1.0300, with the underlying trend pointing to a test of good support at 1.0250.

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