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By XE Market Analysis June 5, 2013 2:10 pm
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    XE Market Analysis: Europe - Jun 05, 2013

    Consolidation set in ahead of central bank policy meetings and Friday's NFP data. U.S. stocks closed at softer levels on Tuesday, which set up a defensive tone in Asia, but overall there was no appetite to force a break of the recent range. USD-JPY dipped back below 100.00 as intra-day accounts reacted with disappointment to PM Abe's growth . The measures will not have an immediate impact and there was no mention of changes to the national pension fund, which had been widely anticipated. AUD fell briefly after Australia Q1 GDP came in at 0.6% q/q versus expectations of 0.8%. EUR maintained a stable tone just shy of the 1.3100 region, where good sovereign flows emerged during Tuesday's session. Meanwhile, HSBC China services sector PMI came in a notch lower at 51.1 in May from 51.2 previously. Markets will start to gear up for the ADP employment report today, the ECB meeting on Thursday, and finally, the official May jobs report on Friday.

    [EUR, USD]
    EUR-USD traded in a tight range. It met buying interest into 1.3065 in Asia, but traded no higher than 1.3095 as offers remained from 1.3100, which were reportedly from soveriegn accounts. Eastern European names and Asian accounts were noted during Tuesday's brief move over this level. However, into the ECB meeting tomorrow further EUR upside is anticipated. Market positioning is a factor and there are also expectations that ECB will keep policy on hold.

    [USD, JPY]
    USD-JPY saw limited upside during the Asian morning and them succumbed to position unwinding as markets reacted with mild disappointment to PM Abe's growth strategy announcement. It centered on removing barriers to corporate activity, will open up various sectors, boost foreign direct investment and raise gross national income per capita. However, there were changes announced to the national pension fund. The dollar firmed up from the 100.00 region to traded into 100.40, but moved quickly lower as longs were cut back. The pullback in equity markets also added weight and it slipped below 99.50 by the Tokyo close. Japanese bids are lined up into the 99.00 region, which should put a floor in place, but the topside looks very limited now and there may be more repositioning in the coming sessions if U.S. yields also back off from recent levels.

    [GBP, USD]
    Cable is underpinned over 1.5300 as the dollar maintained an easier tone overnight. There is potential for more GBP upside today, with the U.K. service sector PMI data due. This will offer a more complete snapshot of the U.K. economy and should point to ongoing improvement in the U.K. economy. Buyers are noted into 1.5300 and 1.5270, while sell orders lie at 1.5350 and into 1.5380, which was the top of the weekly range from Monday.

    [USD, CHF]
    EUR-CHF continues to experience choppy movement either side of the 1.2400 level. The downturn in risk appetite overnight supported the CHF on the periphery, which left EUR-CHF close to 1.2380 and USD-CHF under 0.9500. The cross is in territory where good local demand has emerged in recent sessions, but USD-CHF is likely to take its direction from the broader dollar tone. Dollar longs been paring back positions ahead of Friday's NFP data. Since the recent ISM disappointment there have are also reduced expectations of near-term Fed policy tapering.

    [USD, CAD]
    USD-CAD headed towards 1.0370 overnight as the downturn in equity markets weighed on CAD$. Activity via USD-CAD is light and interest remains on the thin side. The move back over 1.0300 on Tuesday points to more range trading conditions. In the absence of larger leads movement via equity markets and commodities will drive price action. Buyers remain from 1.0320 to just under 1.0300 and sellers increase in size towards 1.0400.

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