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By XE Market Analysis November 14, 2013 2:49 am
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    XE Market Analysis: Europe - Nov 14, 2013

    The dollar traded on the softer side as markets positioned off dovish Yellen comments in prepared remarks ahead of her confirmation hearing later today. She said that the economy and jobs are performing far short of potential, which buoyed sentiment amid expectations that under her leadership the Fed will stay easy for longer. USD-JPY and the JPY crosses surged against this backdrop, which kept EUR-USD and Cable underpinned above 1.3450 and 1.6000, respectively. AUD-USD was supported on dips, but upside movement was restrained after RBA's Rideout said AUD will damage the economy if strength is sustained. Japanese data was encouraging, with Q3 GDP slowing to 1.9% q/q, but higher than market expectations. Reuters Japan November Tankan also revealed a pick up manufacturing and non-manufacturing for the first time in three months.

    [EUR, USD]
    EUR-USD was supported on dips throughout following yesterday's short covering rally towards 1.3500. In Asia, buyers were noted from the 1.3465 region, while EUR-JPY firmness also kept bias with the topside throughout the session. Comments from ECB officials since last week's ECB rate cut have not managed to influence a sustained EUR downside push, which is widely thought to be a function of market positioning, a pick up in hedging activity and reserve management flows. There are, however, good option related sellers into 1.3500 that could cap for a time and better fund offers are seen towards 1.3540-50.

    [USD, JPY]
    USD-JPY rallied out of the 99.15 area early on amid solid demand from importers, real money and option accounts. Aiding the upturn was a very good rally across the Nikkei 225 and it reached 99.75. There was more retail interest for the JPY crosses, which helped EUR-JPY up to 134.00 and GBP-JPY moved into 160.00. Japan Finance Minister Aso warned against excessive one-sided FX moves and said it must retain the option to intervene in the currency market. BoJ Amamiya also said FX was an important transmission channel for monetary policy, but it did not directly target FX levels, which offered more clarity for specs. There are still large 100.00 positions that are outstanding. Large expiries are due to roll off today at that level, though quite a number of structures are expected to run until early December.

    [GBP, USD]
    GBP has maintained firmer levels following yesterday's decent U.K. employment data and the BoE Inflation Report. BoE Governor Carney removed ambiguity over the rate outlook during the accompanying press conference. Even though the BoE said that the unemployment threshold would reach 7% sooner than it originally forecast, Carney indicated it would be a time for review and it could still leave policy unchanged. He also suggested that the BoE could even lower the threshold to 6.5% from 7.0%. Carney emphasised that forward guidance has removed an unnecessary debate on rate hikes and this has helped the recovery. The BoE policy mix of easy policy in a pro-growth, lower inflationary environment should be a positive indicator for the pound going forward.

    [USD, CHF]
    CHF remained narrowly mixed amid the recent contrasting flows via EUR and USD. USD-CHF is marking time near 0.9165 after it reached 0.9125 yesterday versus last week's 0.9250 peak. The impact on EUR-CHF was muted as EUR-USD moved higher. The dollar is still expected to trade on the firmer side in the longer term amid a rise in Fed taper expectations, though a period of sideways movement may influence before trending higher again.

    [USD, CAD]
    USD-CAD is trading at the familiar 1.0475 area. However, it corrected from the 1.0500 area to 1.0440 amid dollar selling on Wednesday. The downturn was influenced by a short covering rally in EUR-USD and expectations of dovish commentary from Yellen. The CAD$ also got positive momentum from a pick up in stocks, oil and gold prices. In the bigger picture, despite the BoC's tightening bias gone, stronger U.S. economic growth should tend to underpin CAD strength over time. Near term though, order flow will determine USD-CAD direction, where currently, it appears the sellers over 1.0500 have the upper hand.

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