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By XE Market Analysis June 10, 2013 3:18 am
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    XE Market Analysis: Europe - Jun 10, 2013

    A positive for risk appetite is the Nikkei's 5% surge and the subsquent stability in USD-JPY over 98.00. This should set the market up for a steadier trading session, bearing in mind that it was a meltdown in yen-funded carry trades that triggered heavy volatility last week. Japanese data was encouraging overnight, but it is also likely to result in another unchanged policy stance from the BoJ tomorrow, though specs are unlikely to run short USD-JPY positions into the decision. AUD remains pressured on the recent downturn in domestic data releases and growing evidence that China is slowing. Economic data out of China on the weekend backed up this thinking. EUR and Cable are trading on a stable footing around 1.3200 and 1.5500, respectively. However, there are still background concerns over Fed tapering after Friday's NFP data came in slightly better than expected which could limit the dollar downside, particularly after recent reduction in speculative dollar long positions. GBP has enjoyed a resurgence in fortunes over the last week on better U.K. fundamentals, which fueled expectations that the BoE will remain on hold for the foreseeable future.

    [EUR, USD]
    EUR-USD was stable close to 1.3200 in Asia, but has struggled to sustain higher levels as the dollar edges higher on background Fed tapering concerns after Friday's slightly better than expected NFP report. CFTC data also revealed a 13% reduction in dollar longs and a 38% decrease in EUR shorts, which suggests that there may now be more potential for downside pressure. The pick up in the dollar overnight also got positive guidance from U.S. Treasury yields and a break below 1.3180 is likely to bring the mid-1.31s quickly into play. Offers remain from 1.3230 into the 1.3250-60 region.

    [USD, JPY]
    USD-JPY started the session on a more stable footing. Friday's rebound out of the 95.00 and the bottom of the Ichimoku cloud at 95.40 was a positive lead, along with the subsequent close above the top of the Ichimoku cloud around 97.30. Early action focused on the topside and buy stops were triggered through 98.00 as stocks headed higher. USD-JPY hit 98.42 highs during the morning, but then fell back to 97.75 over the Tokyo fix, where more dollar supportive flows were noted. Japanese importer demand went through, along with flows from speculative funds and it ended the session underpinned at 98.30. Into tomorrow's BoJ meeting USD-JPY should hold up. The recent volatility is likely to make some players nervous of running short dollar positions and bids at 97.50 to 97.30 are likely to provide a temporary prop.

    [GBP, USD]
    Cable is supported ahead of 1.5500, but there was a lack of sustained upside momentum in Asia as the dollar buying picked up, which forced it from the 1.5565 region. The rush for USD knocked Cable from 1.5600 on Friday and may be vulnerable on the downside with stops close to the market through 1.5490. However, Cable is likely to find good support in the coming sessions towards 1.5400 after the bullish technical backdrop and the recent run of better than expected U.K. data.

    [USD, CHF]
    EUR-CHF is well supported around 1.2380 following Friday's USD-CHF rebound out of 0.9250 to 0.9375 after the U.S. NFP data. The more stable risk backdrop has left the CHF on the softer side, but it will remain sensitive to equity market moves. There was positive guidance from Asia today, though European stocks are mixed in early trade as the market digests press reports that the ECB may set firm limits on the extent of it unused program to buy government bonds. Fresh uncertainty in the eurozone would trigger a flight back into the CHF and send EUR-CHF back into 1.2300 and below.

    [USD, CAD]
    USD-CAD is settled close to 1.0200 following Friday's sharp price swings. USD-CAD took a nose-dive after the twin U.S./Canada employment reports, trading under 1.0170 from 1.0240. The outsized Canadian jobs gain was responsible for the bulk of the CAD rally, though there was a bit of a sigh of relief from the U.S. side as well. USD-CAD did rebound back to the 1.0220 region, but has struggled overnight to test support from 1.0180.

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