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By XE Market Analysis November 11, 2013 3:02 am
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    XE Market Analysis: Europe - Nov 11, 2013

    Asian markets were influenced by Friday's much better than expected U.S. NFP print in October, which ramped up Fed taper expectations. Treasury yields and the dollar were boosted on Friday and remained supported during overnight trade. There was also positive data from the Asia region as China industrial production and retail sales rose 10.3% y/y and 13.3% y/y, respectively. The Japanese current account also rose to a Y587.3 bln surplus in September, which is a 14.3% y/y gain and much stronger than expected. FX traders out of Europe will note that Fed Chairman Bernanke said late Friday that the jobless rate understates slack in the labor market. Meanwhile, ECB's Coeure said the ECB can cut rates again or provide liquidity if needed, which reinforced the EUR-USD short trade near 1.3350 overnight. USD-JPY consolidated near 99.00 and AUD-USD also marked time near 0.9380.

    [EUR, USD]
    EUR-USD maintained a heavy tone overnight after Friday's sharp drop. Last week's ECB rate cut and ramped up Fed taper expectations left downside risk. It made an early push into 1.3345-50, though follow through was limited by Asian commercial flows. The near-term risk is for a move back to last Thursday's base just under 1.3300, where very strong Asian account demand emerged. Corporate bids have increased since the back end of last week, though the upside is capped from 1.3400 and 1.3440-50 now.

    [USD, JPY]
    USD-JPY and the JPY crosses were a bit easier as exporter hedging picked up following Friday's strong bid, which came on higher Treasury yields. USD-JPY pulled back from 99.25 and edged through 99.00. Follow through under 99.00 was limited though on fund demand and fast money flows. Progress on the topside could be limited in the near-term due to outstanding option barriers, which are linked to range binary positions. On an intra-day basis today's partial holiday in the U.S. should lower interest. However, over the coming sessions the risk of Fed taper in December raises the potential for a run on the 100.00 level.

    [GBP, USD]
    Cable steadied near 1.6000 after it found buyers ahead of 1.5960 following a large drop over NFP from 1.6085 to 1.5960. Fundamentally, there are still strong arguments to remain long of GBP after U.K. data strength last week. Thursday's steady hand from the BoE was to be expected after the BoE has already laid a well defined forward guidance strategy. It has another opportunity to refresh its position on Wednesday when it releases the Quarterly Inflation Report. The release will come on the same day as U.K. employment data.

    [USD, CHF]
    As was the case following the ECB rate cut and strong U.S. GDP report on Thursday, USD-CHF ramped up toward 0.9250 after the strong U.S. jobs report on Friday. It has managed to consolidate gains and is currently near 0.9220 as the dollar sustains higher levels. EUR-CHF found support under 1.2300 and moved through 1.2325 on USD-CHF strength. However, following the ECB rate cut, the SNB has been put in a difficult situation, in fact SNB's Jordon said the ECB rate cut creates a "complex situation" and that the SNB needs to wait to assess the impact of the move.

    [USD, CAD]
    USD-CAD has pulled back modestly after it moved over 1.0500 in the aftermath of the better U.S. and Canadian employment reports, bouncing to 1.0503 from near 1.0450. On Friday it was the first time since September 6 the pairing traded on 1.05. However, follow through demand was contained by corporate demand and there were light macro fund orders. We still maintain that in the bigger picture, as the U.S. economy improves, the CAD should benefit.

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