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By XE Market Analysis June 13, 2013 5:15 am
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    XE Market Analysis: Europe - Jun 13, 2013

    Movement in Asia was dominated by further Japanese market losses, which triggered more deleveraging. The Nikkei closed almost 5% lower, having lost as much as 6% during the session, which fueled a sustained USD-JPY move under 95.00, which kept EUR-USD elevated over 1.3350 and Cable close to 1.5700. AUD was pressured by the broad risk-off theme, though did experience a brief spike over 0.9500 after a decent Australia jobs number, but funds faded the rally. NZD headed briefly under 0.7900 after the as-expected RBNZ rate outcome only provided fleeting support as investors used the move into 0.7990 to cut weak longs.

    [EUR, USD]
    EUR-USD has benefited from USD-JPY weakness, which enabled it to clear good offers into the 1.3350 area. It is making hard work of it on the topside as EUR-JPY and EUR-CHF struggle due to deleveraging, though some of these flows are being offset by a strong EUR-AUD bid. EUR-USD's move higher this week should leave near-term bias on a move over 1.3400, though progress may be slow due to cross flows, along with an overhang of offers from option names and residual flows from sovereigns.

    [USD, JPY]
    USD-JPY recorded a sustained move under the 95.00 level after Japanese stocks went into free fall amid doubts over Abenomics. The much-vaunted 'third arrow' in Abe's growth revival strategy has not gone down well in the market. Comments from BoJ Governor Kuroda and other Japanese officials have also been relatively relaxed over recent market volatility, which is worrying investors. There are concerns that Japan have created a situation, which they are struggling to manage, fueling a flight to quality and significant unwinding of short yen positions. On an intra-day basis USD-JPY fell back from just over 96.00 after a volatile N.Y. session and broke below 95.00 during the Tokyo afternoon. It extended to the 94.00 region. However, option related buying could still feature. The large 95.00 expiry is a digital option and could fuel volatility over the course of the session.

    [GBP, USD]
    Cable continues to trade close to the 1.5700 region after the downturn in USD-JPY triggered a default bid. However, it has not sustained a move over 1.5700 amid very heavy offers. The underlying trend should encourage a persistent bid on dips and it looks likely that stops through 1.5710 will attract at some point during the course of today's session. U.K. economics fundamentals are improving and the daily chart is also very positive, but it is currently at overbought levels and there may be a short period of sideways action.

    [USD, CHF]
    The meltdown in global stock markets fueled a strong bid for the CHF. EUR-CHF headed to 1.2230 in early Europe from just over 1.2280 in Asia. The catalyst for the downturn was USD-CHF weakness and it dropped from over 0.9200 to 0.9140 after the USD-JPY slumped. There are near-term support levels just in front of 0.9100, which could provide a modicum of support, while EUR-CHF should also meet buyers into the 1.2220 region.

    [USD, CAD]
    USD-CAD is supported over 1.0200 as the downturn in stocks weighed on the commodity bloc currencies. After hitting 1.0156 lows on Wednesday it reversed course and has met good supportive bids in the 1.0170s and 1.0180s. These are likely to support intra-day, but once again the risk backdrop and movement across stocks and commodities will guide action and we expect more volatile trade. Offers are noted from 1.0220-30 and into 1.0250.

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