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By XE Market Analysis June 24, 2013 3:01 am
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    XE Market Analysis: Europe - Jun 24, 2013

    The dollar held steady as Fed policy tapering concerns continued to influence, leaving EUR close to 1.3100 and Cable under 1.5400. China liquidity risk remained after an editorial by Xinhua news said Beijing would not take an extra measures at this time to deal with the squeeze in money market rates. This weighed on most regional stocks and left AUD on the heavy side close to 0.9200. JPY headed lower, which lifted USD-JPY to two week highs around 98.70 after the leading coalition won an easy victory in Tokyo Metropolitan Assembly polls on Sunday. In other news, the BoE and PBoC agreed a three-year currency swap agreement. Meanwhile, ECB's Weidmann said ECB is unlikely to launch unlimited bond purchases and warned the market that it should not count on low rates forever.

    [EUR, USD]
    EUR-USD traded around 1.3100 into the European open. It turned away from 1.3120 in early trade and headed to 1.3085 as light stops gave way. Appetite to force the range was a little limited in Asia due to low volumes. However, Fed policy expectations continued to resonate and the underlying risk is still on lower levels despite comments from Weidmann that indicated that the ECB is also unlikely to do more policy stimulus. EUR should find initial support in Europe into the 1.3070 region, although the market is in the mood to fish for stops lower down. Sellers are seen into the 1.3140-50 area.

    [USD, JPY]
    USD-JPY and the JPY-crosses were supported after the ruling coalition won an easy Tokyo Metro election victory, which suggests a similar win in the Upper House election in July. Remember, PM Abe promised more measures to support the economy in July. Election news boosted USD-JPY from 97.85 and stops took it up to the 98.70 area overall. The Nikkei added over 1% early on, but could not sustain higher levels due to the China liquidity risk. However, this did not have a significant impact on the USD-JPY tone. It met buyers on a brief pullback towards 98.30, leaving it underpinned around 98.50 by early Europe.

    [GBP, USD]
    Cable remained heavier on Monday as Friday's dip under 1.5400 encouraged selling pressure on strength out of Asia. After starting the session over 1.5400 it headed to the 1.5365-70 region. Bias will remain on lower levels, though corporate bids are noted into 1.5350-60 and from 1.5330 to 1.5300. EUR-GBP is still trading at the lower end of the very recent range, but a range trading bias may continue as M&A support is expected into 0.8500 and 0.8480, while this is being offset by long term hedging from 0.8580 to 0.8600.

    [USD, CHF]
    EUR-CHF is steady just ahead of 1.2250. In the last couple of session is has been underpinned by demand for USD-CHF on dips. However, increasing expectations that global central banks will become less accomodative is likely to weigh on risk appetite and in turn limit EUR-CHF's ability to rally. Note, EUR-CHF has been supported for some time just under 1.2250 due to long-term support from 1.2220, where very large bids are noted.

    [USD, CAD]
    USD-CAD reached new 2013 highs over 1.0500 in Asia. More heaviness in commodity and equity market prices lifted through 1.0500 option barriers into the European open and it extended to the 1.0515 region. On Friday, CAD$ was weighed by the softer Canadian CPI and retail sales data. The last time the pairing was up at these levels was in November of 2011. The November 1.0523 high will be the next upside target, though option backed offers, along with corporate demand may see slow movement from here.

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