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By XE Market Analysis June 14, 2013 5:27 am
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    XE Market Analysis: Europe - Jun 14, 2013

    Sentiment improved, which supported USD-JPY and it ended the session above 95.00. Movement via USD-JPY tended to guide action and the dollar firmed up against EUR, GBP and the commodity bloc currencies. Yesterday's positive close for U.S. stocks was reinforced by a sharp rebound in Japan. The Diet passed PM Abe's growth plan as-expected, but he also promised more steps after the Upper House elections in July. Meanwhile, fears over Fed policy tapering eased as the latest Hilsenrath column suggested that Bernanke will use next week's meeting to stress that any move lower in the pace of QE won't mean the Fed is close to ending the program. China policy easing expectations also picked up after the China Securities Journal said that the PBoC could cut interest rates and bank reserve requirements in H2.

    [EUR, USD]
    EUR-USD tested the downside as option related selling capped. Offers were noted from 1.3380 overnight and it did not trade much higher than 1.3350 since the European open. An outstanding 1.3400 barrier will expire today, part of a double no touch option, but there are further digital options that run into next week and may still limit the upside. There wasn't much guidance from stocks in Europe, which were consolidative despite a positive close in the U.S. on Thursday and a decent rally in Asia. The latest piece from Fed watcher Hilsenrath said the Fed would push back against market expectations of a rate increase. It weighed on the dollar in early Asia, but the dollar was supported for most of the session. European account demand should emerge into 1.3300 and yesterday's N.Y. morning low at 1.3280.

    [USD, JPY]
    USD-JPY traded in a narrower range, although movement remained on the choppy side. USD-JPY drifted lower after the European open as Tokyo names booked profit into the weekend, which forced a move from 95.30 to 94.70, though it backed up over 95.00 as stocks maintained a more stable to firmer tone. In Asia, the USD-JPY upside was limited over 95.50 by corporate offers and short term accounts playing the range. After the recent volatility there was no appetite to run positions for too long. There were mixed views over PM Abe's growth plan. The fact that it passed through the Diet was not surprising, but Abe did not provide any fresh details to flesh out the initial announcement last week, which gives credence to reports that reforms are more likely to be watered down over the longer term. Abe promised more measures in July after the Upper House election. However, market participants are starting to think he may be struggling to put in place the 'third arrow' in his big revival plans. Ongoing doubts also remain over BoJ policy and the inintended market volatility that has followed.

    [GBP, USD]
    Cable was weighed by profit taking, taking it down to 1.5615 versus 1.5715 in early Europe and yesterday's N.Y. session high at 1.5738. Corporate flows were also evident on the way down and U.K. clearers were both active out of N.Y. on Thursday and since the European session got underway today. Hedging picked up after the 200-dma around 1.5700 gave way earlier this week, while outstanding option barriers are also noted at 1.5750. Order book support is tipped at 1.5600-10, while from a technical standpoint Cable is still skewed to further upside movement and any correction is seen as a buying opportunity.

    [USD, CHF]
    The CHF has settled at easier levels as risk appetite improved in N.Y. on Thursday and sentiment held up in Asia. It's likely that stocks will be a heavy influence into the weekend given the recent volatility. Specs were tentative buyers of risky positions intra-day. EUR-CHF is trading around 1.2330 after bids propped at 1.2300 early on and USD-CHF was boosted from the 0.9225 area over 0.9250. Appetite to run aggressive positions is likely to remain low into the weekend after the volatility this week. The EUR-CHF upside should remain limited into 1.2350 and above, while USD-CHF is expected to meet supply ahead of 0.9280.

    [USD, CAD]
    USD-CAD steadied after stops through 1.0145 held during Thursday's session. However, an upturn in risk appetite in Asia kept the balance of risk on the downside in quiet European morning trade. Short term selling was noted ahead of 1.0190 in late Asia and more offers are noted across 1.0200, which were lowered from 1.0220-30 yesterday. A move through 1.0145 would accelerate demand for CAD$, but momentum should slow towards natural order flow between 1.0120 and 1.0100.

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