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By XE Market Analysis June 18, 2013 4:25 am
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    XE Market Analysis: Europe - Jun 18, 2013

    Markets were in a holding pattern ahead of the FOMC outcome on Wednesday. There remained further conjecture on Monday over when the Fed could taper QE. This added to volatility, but did not have a lasting impact. AUD was the exception after it came under increased selling pressure in thin trade after the RBA minutes continued to leave the door open for further easing if needed. The USD-JPY upside remained limited over 95.00 despite the G8 backing for the Japanese policy stance. EUR and Cable consolidated close to 1.3350 and 1.5700, respectively, with no appetite to force a sustained break of range in quiet trade.

    [EUR, USD]
    EUR-USD consolidated close to 1.3350 as recent ranges held in quiet trade. Yesterday's move on 1.3380 met option related offers ahead of outstanding 1.3400 barriers. The lack of upside progress on Monday fueled light selling in Asia and it drifted into 1.3350 over the course of the Asia session. Option expiries could attract again if there is a lack of fresh impetus and more strike congestion is seen between 1.3300 and 1.3350. Beyond the FOMC outcome there is scope for much larger ranges after a significant reduction in speculative positioning over the last week or so.

    [USD, JPY]
    USD-JPY was supported on dips after the G8 backed the Japanese policy stance. USD-JPY found buyers under 94.50 in Asia and threatened the 95.00 region, but continued to see limited upside due to exporter offers and short term funds playing the range. It looks likely that this theme will continue until the Fed policy outcome. Meanwhile, Japan Economy Minister Amari said that many countries that worry about others deliberately weakening their currency to boost exports have used the same approach to boost theirs. Finance Minister Aso said the G8 showed that understanding of Abenomics is spreading.

    [GBP, USD]
    Cable is consolidating around 1.5700 after it ran out of gas over 1.5750 on Monday. The dollar trended lower overall in thin trade ahead of the FOMC outcome, but appetite to force a sustained break of range was limited. In Asia, flows were very light, leaving Cable tied to 1.5700, where the 200-dma is, along with several large option expiries for the third consecutive session. Cable should continue to benefit from the recent improvement in U.K. fundamentals, which has backed expectations for steady monetary policy for the foreseeable future. However, the FOMC outcome is expected to guide directional bias in the coming sessions. Offers higher up include very strong resistance at 1.5790, along with barriers from 1.5800.

    [USD, CHF]
    The CHF is still settled at slightly easier levels than we've seen of late as risk appetite ended last week on a more positive footing and markets have been largely stable since the start of the week. EUR-CHF is trading close to the 1.2325-30 region after it backed away from Monday's 1.2363 highs, while ;USD-CHF is underpinned around 0.9225. It chopped between 0.9220 and 0.9270 on further Fed policy speculation on Monday, but settled into range by the Asia Pacific open. Interest to run long USD-CHF positions ahead of this week's FOMC meeting and SNB policy outcome was evident last week and this should keep the dollar pairing stable. The SNB are expected to maintain the current policy stance, but there has been intense speculation in recent weeks that the Fed could begin to taper QE later this year.

    [USD, CAD]
    USD-CAD is moving comfortably to range. After the recent test on either side of the market movement has narrowed within the familiar trading range. USD-CAD tested levels under 1.0150 late last week, but found buyers from 1.0150 yesterday and headed back over 1.0200 on Fed policy speculation. Prices have since eased though, with an Asian sovereign noted on top and markets generally in a holding pattern ahead of the FOMC outcome. We suspect the Fed will maintain the status quo on policy and broader market sentiment will no doubt drive price action in the latter part of the week.

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