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By XE Market Analysis November 1, 2013 4:01 am
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    XE Market Analysis: Europe - Nov 01, 2013

    FX markets continued to reflect a re-pricing of central bank policy expectations, which boosted the USD and weighed on the EUR. The USD was underpinned after the less dovish Fed policy statement on Wednesday and subsequent U.S. data mix, which left the door ajar for December taper. Meanwhile, EUR posted its biggest fall in six months on Thursday after softer than expected Eurozone CPI put a ECB rate cut back on the table ahead of next week's ECB meeting. EUR-USD extended losses through 1.3550 in Asia, while USD-JPY headed back into 97.80 as EUR-JPY weakness weighed. AUD was underpinned after strong domestic data, which included PPI and PMI, while China's official PMI rose to 51.4 in October from 51.1 previously, but the breakdown was unbalanced.

    [EUR, USD]
    EUR-USD extended losses in Asia and took out another round of order congestion at 1.3550 to reach 1.3540. Fund names were active and there were heavy flows that went through EUR-JPY as retail investors cut longs after yesterday Eurozone CPI put ECB rate cut risk back in the market. The EUR may have further to go on the downside as many EUR buyers had entered the market over the last few weeks due to the central bank policy outlook, a bullish technical backdrop and front running in anticipation of European bank repatriation flows.

    [USD, JPY]
    USD-JPY was weighed by JPY-cross weakness. The dollar pairing dropped from 98.40 to 97.80 amid heavy supply in EUR-JPY and GBP-JPY. With markets rethinking a Fed December policy taper there was also a reduction in leverage positioning generally, which boosted JPY via emerging FX and cleared out large positions due to stops. USD-JPY found support at the lows from Japanese importers and once the JPY-cross adjustment ran its course it reflected dollar firmness across the board and edged back to 98.00.

    [GBP, USD]
    Cable received a modicum of support from the EUR sell-off. The weaker than expected Eurozone CPI release triggered a rethink amongst the macro community and EUR-GBP headed lower with the dollar headline. EUR had been on an upward trajectory over the week or so, which lifted EUR-GBP to 0.8585 highs on Tuesday. The shift lower has taken the cross back through long-term moving averages, which gave way earlier in the week, and it extended all the way down to 0.8450 by early Europe. This left Cable supported towards 1.6000, though with the USD on the front foot it will also struggle over 1.6050.

    [USD, CHF]
    USD-CHF looks poised for further upside based on a very encouraging technical backdrop. USD-CHF traded at higher levels on four consecutive sessions ahead of today's open and since it bottomed out a shade under 0.8900 last week. Wednesday's FOMC statement and Thursday's Eurozone CPI does tip the bias in favour of further dollar upside in the short term, particularly with next week's ECB meeting coming into focus. The move up through 0.9050 could see an extended push back through 0.9100 and then 0.9150 if the dollar can gain momentum. The caveat for longs is U.S. data may turned more mixed as it reflects the period over the U.S. government shutdown in the coming weeks, which will also include the delayed October payrolls report due on November-8.

    [USD, CAD]
    USD-CAD slid to 1.0412 by yesterday's North American afternoon session following the better Canadian GDP outcome. Standing bids at 1.0410 put a temporary floor underneath the pairing, with more buyers seen at 1.0400. On the other side, 1.0500 barriers, which came within two pips of being extinguished on Wednesday (for Friday roll-off), looked a bit safer on Thursday. The bias for USD-CAD looks weak based on technical indicators, but underlying dollar firmness and a risk-off tone could limit the downturn.

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