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By XE Market Analysis June 7, 2013 2:23 am
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    XE Market Analysis: Europe - Jun 07, 2013

    USD-JPY and AUD-USD came back under pressure in Asia as hedge funds and short term specs continued to liquidate carry trade positions. The dollar remained under pressure, though mostly against the yen in Asia after it was crushed in N.Y. trade on Thursday. The ECB fueled a sharp EUR-USD move higher as Draghi back-peddled to some extent from what looked like a shift towards a more activist policy, with no commitment to further policy measures. The sell-off in USD-JPY was exacerbated by a drop in Treasury yields, while in Asia, specs were nervous over more downside pressure after Japanese Finance Minister Aso said Japan had no plans to intervene in FX.

    [EUR, USD]
    EUR-USD continued to trade on a stable footing close to 1.3250 following Thursday's surge to 1.3306. The dollar remained softer overall, with USD-JPY under pressure and after yesterday's marked liquidation of stale dollar long positions. In Asia, flows were mainly focused on JPY and AUD. EUR-JPY and EUR-AUD flows offset each other. EUR should maintain a supportive tone in the very short term following yesterday's less dovish rhetoric from Draghi. However, if eurozone spreads continue to widen then sentiment in the EUR may be dented again. The lack of policy consensus at the ECB could also be a worry for investors.

    [USD, JPY]
    USD-JPY fell sharply again after starting the Asian session above 97.00 versus yesterday's 95.90 low. After registering an early high of 97.50 it tumbled to 95.55 lows after Japan Finance Minister Aso said that FX intervention was not being considered at the moment. Other comments from Amari and Hamada also sounded like Japanese policy makers were not unduly concerned, which will worry investors that they could lose control on the situation. MoF's Yamasaki did voice his concern over rapid moves, adding that he was closely monitoring markets. Late on in Tokyo trade, USD-JPY staged a recovery to 97.00 as the Nikkei rebounded, though liquidity is very low, according to market participants.

    [GBP, USD]
    Cable is holding firm close to 1.5600 after Thursday's heavy dollar losses. Cable has also got added benefited from a clean sweap of positive U.K. data this week, which will raise expectations that the economy could be doing better than the BoE anticipates. If this is the case then the BoE may leave policy unchanged for an extended period of time. This would be in line with our central view that the BoE will refrain from QE until the end of the year. Buy of Cable are likely into the 1.5550 region and 1.5530. Offers are noted at 1.5625-30, 1.5650 and 1.5685, which protect option barriers at 1.5700.

    [USD, CHF]
    USD-CHF remains just under 0.9300 after it sank on Thursday amid the deep dollar sell-off. It fell from the 0.9400 region and extended to 0.9225 lows before some semblance of stability was restored. The downturn in USD-CHF weighed on EUR-CHF, which traded into 1.2275 from the 1.2380 area. It backed up overnight to 1.2300, but the uncertainty in the market ahead of NFP is likely to leave the CHF supported on dips. EUR-CHF sellers are noted from 1.2330-40, and from 1.2360 to the 1.2380 area. Bids are seen into the 1.2250 region.

    [USD, CAD]
    USD-CAD is currently trading around 1.0250 following volatile trade on Thursday. It traded in a range of 1.0199 to 1.0355 in the aftermath of the ECB related volatility. Option backed offers were noted from 1.0350, and are said to be in place up to 1.0380. On the downside, heavy corporate bids put a floor in place from 1.0200. A significant number of orders were cleared out on Thursday, but we would expect to see short term dollar sellers into the 1.0280-00 region.

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