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By XE Market Analysis November 21, 2013 2:14 am
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    XE Market Analysis: Europe - Nov 21, 2013

    The USD held on to firmer levels and EUR remained heavy following yesterday's contrasting central bank policy news.News that ECB is considering a -0.1% deposit rates if more easing is needed caught the market long of EUR near 1.3550 and the sell off was reinforced after the FOMC minutes revealed discussions about policy tapering. It closed out the N.Y. session around 1.3420, where it remained in Asia. The Fed-talk weighed on risk assets in Asia and the tone was compounded by a weaker China November HSBC flash PMI reading as new export orders fell. The BoJ left policy unchanged as expected. Sentiment was positive in Japan after yesterday's GPIF recommendations on diversifying into more risky assets, which included overseas investments. Australia markets await today's speech from RBA Governor Stevens. In NZ, October job ads data rose 4.9% m/m.

    [EUR, USD]
    EUR-USD traded on the heavy side throughout the session after yesterday's latest news on ECB and Fed policy. The downturn from the 1.3550 region caught quite a number of short term accounts long, though broader market positioning has pointed to downside potential since the ECB took on a renewed dovish tone. The balance of risk will still remain on the downside, but since the ECB cut rates it has not sustained lower levels for long and intra-day accounts are more inclined to fade rallies rather than selling at current levels.

    [USD, JPY]
    USD-JPY continued to benefit on GPIF panel recommendations that called for a rise in the foreign asset ratio, as well a pick up in exposure to risk assets. The underlying tone was also positive on Fed policy risk. There was more fund demand for the dollar pairing and it traded out of the 100.00 region and extended through option barriers at 100.50. Japanese retail demand went through the crosses, though AUD-JPY was choppy due to weaker than expected China PMI data. There are also expectations that RBA Governor Stevens will talk down AUD after comments from Debelle and the IMF on Wednesday. USD-JPY's upside may run into order congestion into 100.80-90, with exporter offers placed just in front of another set of option barriers. Note, that very large structures between 101 and 103 are now in the market view and this could reinforce upside momentum on follow through hedging activity.

    [GBP, USD]
    Cable headed back below 1.6100 after it pulled back from the 1.6180 on broad dollar gains. The FOMC minutes reignited the potential for a near-term taper in Fed policy and triggered a move into 1.6090 and it extended to the 1.6070 region in Asia. We still think Cable longs are primed for a 1.6200 test and an eventual move on previous trend highs around 1.6250-60, where it topped out on October-1 and October-22. In the meantime though, USD and EUR fluctuations are likely to influence in the short-term.

    [USD, CHF]
    EUR-CHF drifted into the 1.2310-30 area as EUR-USD was unable to sustain overnight gains. USD-CHF shot over 0.9190 from opening levels near 0.9100, inconcert with EUR-USD's dive, and later, following the FOMC minutes. For the most part, activity in the swissy has been uneventful since the SNB warned that it was digesting the impact from the recent ECB rate cut. This has been enough to deter heavier demand for the CHF and it looks like this theme will continue in the near-term.

    [USD, CAD]
    Bigger picture, USD-CAD remains a range trade, and could continue to be influenced by Fed taper expectations, and the incoming U.S. data. To illustrate this theme USD-CAD traded a range of just 1.0438 to 1.0474 on Wednesday. Bids are lined up from 1.0430 to 1.0400 currently, while offers kick in at 1.0480 and extend through 1.0500. Large stops area building through 1.0520.

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