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By XE Market Analysis November 5, 2013 2:10 am
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    XE Market Analysis: Europe - Nov 05, 2013

    There wasn't much movement of significance in Asia as the FX majors moved within familiar and narrow ranges. EUR traded near 1.3500, Cable was just short of the 1.6000 region and USD-JPY moved either side of 98.50. The only notable movement came when the RBA maintained policy rates at 2.5% and released its accompanying statement, which left the door open for more policy action if needed. It also talked down AUD again, stating it was uncomfortably high and declines are likely to be needed to balance growth. AUD pulled back from 0.9520 to 0.9465 on the remarks. Meanwhile, China HSBC October services PMI rose to 52.6 from 52.4 previously as new business growth reached a seven-month high. China Premier Li said China needed growth of 7.2% to ensure a stable jobs market, but did not want short term measures that were unsustainable, which seemed to rule out potential monetary expansion or stimulus measures.

    [EUR, USD]
    EUR-USD maintained altitude near 1.3500, through much of the session, though offers from 1.3520 stymied further gains. Some short covering may come into play ahead of the ECB meeting, though short term accounts are expected to fade moves into 1.3525 initially and then into 1.3540-50 in anticipation of dovish policy rhetoric from ECB's Draghi on Thursday. Weighing on the EUR-USD topside was EUR-JPY and EUR-CHF heaviness as equity markets were pressured overnight.

    [USD, JPY]
    USD-JPY traded on the softer side amid a pick up in exporter offers, along with option related selling from 98.70 amid large expiries from 99.00 and above in the next two sessions, as well as outstanding option barriers. A downturn in regional equity markets weighed on the JPY-crosses and EUR-JPY fell from 133.35 to 132.70, while AUD-JPY dropped from 93.85 to 93.10 over the RBA policy statement. The USD-JPY downside was supported on dips amid good importer bids and fund demand between 98.50 and 98.25, which stopped the pair from threatening support that is protecting the 98.00 region. Overall, rangebound action is likely to continue ahead of key event risks/data on Thursday and Friday.

    [GBP, USD]
    Cable consolidated overnight, leaving it just ahead of 1.6000. On Monday, a better than expected U.K. construction PMI reading and a slight dollar correction lifted Cable from 1.5905 through 1.5975. However, it stalled into 1.5980, where short term offers have been placed ahead of resistance between 1.5990 and 1.6010 on the hourly chart. These are likely to cap in the very near-term, though a good services PMI reading today would reinforce topside movement.

    [USD, CHF]
    CHF maintained a mixed tone due to contrasting USD and EUR flows. A push out EUR long positions late last week left EUR-CHF near 1.2300, but this has been offset to a degree by USD-CHF's supportive tone. On Monday, USD-CHF moved up to 0.9150 in thin trade, but it could not sustain higher levels and edged back to 0.9115 as the dollar corrected a touch. The CHF also experience buying interest on dips against the EUR ahead of the ECB policy decision on Thursday as ECB rate cut expectations picked up last week.

    [USD, CAD]
    USD-CAD recovered from the 1.0400 area on Monday and moved back to 1.0440 overnight. Corporate names were again mentioned on the bid, with the interest seen layered down to 1.0380. On the topside, offers are seen in place from 1.0440-50. However, supply is not as heavy as it was last week when option barriers at 1.0500 influenced, along with real money demand for CAD. The downturn in risk assets overnight also added weight on the CAD tone and it may threaten last week's peak just ahead of 1.0500 in the coming sessions.

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