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By XE Market Analysis November 4, 2013 3:07 am
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    XE Market Analysis: Europe - Nov 04, 2013

    The dollar held firm in Asia after posting a decent rally late last week due to renewed talk of Fed taper and ECB rate cut speculation following weaker than expected Eurozone CPI data. EUR-USD slumped to 1.3442 lows in Asia in very thin trade and led to a Cable drop to 1.5904. USD-JPY moved towards 98.85 on the back of underlying dollar strength, while AUD-USD bucked the underlying trend due to a rise in China non-manufacturing PMI to 56.3 in October from 55.4 previously and domestic data was also mixed. Australia retail sales rose 0.8% m/m in September, which was better than expected and offset a 0.1% m/m fall in overall October job ads. The Australia house price index rose 1.9% q/q and 7.6% y/y, which was slightly below expectations.

    [EUR, USD]
    EUR-USD extended recent losses as stops were filled in thin trade. It broke to lows at 1.3442 and then edged back to the 1.3475-80 area after the interest was filled. The adjustment in Fed and ECB policy expectations should leave the immediate bias on the downside. For European traders today there is Eurozone PMI data to digest, while in the latter part of the week the outlook could shift again due to the ECB policy announcement and then Friday's delayed NFP release. However, a close under 1.3450 could see more losses in the very near-term.

    [USD, JPY]
    USD-JPY is consolidating ahead of the 98.50 region after offers from 98.90 capped overnight. USD-JPY largely matched last Friday 98.85 top, but option related offers put a top in place overnight. Japanese markets were close for Culture Day and volumes were low. A slightly correction in EUR-USD since late Asia has weighed a touch on USD-JPY, though underlying dollar strength and a revival in Fed taper risk has left the bias with the topside. There are still a congestion of outstanding barriers related to range binary positions that run until late November and early December, which should fuel supply on strength. These are noted from 99.00 layered into 100.00.

    [GBP, USD]
    Cable extended losses overnight after intra-day accounts responded to a downturn in EUR-USD in thin trade. It extended to 1.5904, which is close to the bottom of the short-term trend since mid-October. There is likely to be some natural demand on dips, but with Fed taper risk back on the horizon Cable will struggle to sustain higher levels and could vulnerable. EUR-GBP is still under pressure after it slumped below 0.8450 last week and selling pressure is noted from 0.8480 currently.

    [USD, CHF]
    CHF maintained a mixed tone due to contrasting USD and EUR flows. A push out EUR long positions has left EUR-CHF over 1.2300, but this has been offset to a degree by USD-CHF's move up to 0.9150 overnight. The CHF may seen buying interest on dips against the EUR in the very near-term as risk assets struggle with the market rethink on Fed taper. USD-CHF looks poised for further gains after it recorded several sessions of higher highs.

    [USD, CAD]
    USD-CAD struggled to make any topside progress and probed the 1.0405 area in early Europe. Bias was turned slightly to the downside after the short term market got caught long last week after 1.0500 barriers held into expiry, while there was also heavy CAD demand related to the Barrick Gold equity offering. However, now that these factors are no longer relevant there is more potential for USD-CAD to sustain higher levels. A lot will depend on how risk assets perform though.

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