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By XE Market Analysis November 20, 2013 2:52 am
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    XE Market Analysis: Europe - Nov 20, 2013

    The dollar eased as Fed Chairman Bernanke maintained his commitment to policy accommodation in a speech after the N.Y. close. Kneejerk dollar selling in early Asia lifted EUR towards 1.3580 and USD-JPY dipped just under 100.00, though prices backed up over the course of the session, leaving prices largely net unchanged. AUD retested the 0.9450 area then fell to 0.9390 after RBA's Debelle talked down AUD, but put the onus on Fed policy rather than the RBA, while there was negative guidance as the ASX underperformed on growth concerns. The Japan October trade deficit widened to Y1,090.7 bln from Y934.3 bln previously as exports hit three-year highs of 18.6% y/y and imports surged by a record 26.1% y/y. PBoC Vice Governor Hu pledged to reform rates and FX following yesterday's roadmap that was revealed by Governor Zhou to MNI. Elsewhere, NZ Q3 PPI input prices rose 2.2% q/q and output price came in at 2.4%, which boosted NZD at the open, but then it retreated to 0.8330 intra-day as specs got caught long near 0.8400.

    [EUR, USD]
    EUR-USD made a run up to 1.3580 on comments from Fed Chairman Bernanke. However, follow through was limited. Bernanke did not really offer a ground breaking view and after the initial stop hunt sellers gained the upper hand. There were fund names noted on top and EUR-JPY also met very good supply ahead of 136.00 and it eventually led to a EUR-USD pullback to 1.3540. The euro continues to have trouble sustaining higher levels, and with the recent ECB rate cut, and the persistent rumblings of Fed taper in Q1 2014, we see EUR-USD continuing to be in sell-the-rally mode.

    [USD, JPY]
    USD-JPY traded on the firmer side in early trade near 100.20, but could not sustain higher levels as the dollar experienced kneejerk selling on Bernanke's dovish comments. The dollar pairing was helped to a degree by EUR-JPY's surge on 135.95, but it also turned lower as fund selling went through and the dollar consolidated. Japanese exporters remained active in USD-JPY and it briefly traded under 100.00. However, follow through remains limited by offshore funds positioning for further upside and good importer demand, leaving it close to 100.00, where more good size expiries are rolling off again. Meanwhile, Reuters reported that Japanese investor sales of local assets via investment trusts hit the highest levels since 2008, which offers colour to the recent yen underperformance. Meanwhile, the Japan reform panel will recommend that GPIF and other domestic funds alter JPY-heavy portfolios, invest in inflation-linked bonds and adopt new benchmarks for passive investment in domestic stocks.

    [GBP, USD]
    Cable continued to find support around 1.6100 overnight. GBP dips are still being used as buying opportunities ahead of today's BoE minutes tomorrow and more U.K. data later this week. The focus for longs is an eventual push back on the 1.6200 region and then recent trend highs near 1.6250-60. Today's minutes should fall in line with the Inflation Report and point to a better outlook. Buyers of late have lined up bids from 1.6090 to 1.6060.

    [USD, CHF]
    EUR-CHF traded on a stable to firmer footing, leaving it near 1.2330. The recent improvement in market sentiment and swissy selling came after dovish remarks by U.S. Fed Chairperson-designate, Yellen. Fed Chairman Bernanke also reiterated that policy would remain accommodative overnight. This will be good news for Swiss policymakers given the renewed drop in CPI and PPI numbers into negative territory, developments which in themselves will maintain the SNB's commitment for ultra-loose monetary policy and its currency cap.

    [USD, CAD]
    USD-CAD remained supported on dips. Buyers overnight were noted ahead of 1.0450 after it moved up to 1.0485 on Tuesday. The consolidative tone at higher levels bodes well for further gains and there may be an eventual test of offers at 1.0500 and then stops at 1.0520.

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