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By XE Market Analysis November 25, 2013 3:02 am
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    XE Market Analysis: Europe - Nov 25, 2013

    A small correction was noted during the European morning session. The dollar made up ground against EUR and GBP after underperforming in early Asia, while USD-JPY and the JPY crosses also pulled back from overbought levels. The positive close for U.S. markets on Friday helped the overall market tone, but ahead of the U.S. Thanksgiving holiday later this week the focus was more on booking cleaning rather than fresh positioning. This left EUR close to 1.3500, Cable near 1.6200, while USD-JPY was settled at 101.75 after 102.00 barriers held. The commodity bloc currencies continued to trade heavily after the recent macro fund sell-off. News that Iran reached a deal with the six world powers was a negative influence for oil and kept CAD pressured, while AUD also struggled after last week's RBA currency talk. Policy talk from the ECB and the BoJ underlined the easy policy stance, but did not change market dynamics intra-day.

    [EUR, USD]
    EUR-USD drifted lower as offers increased over 1.3550 in Asia, which has been the case on recent EUR rallies. Option maturities from 1.3520 down to 1.3450 could see prices slow on further moves into 1.3500. There is conjecture that EUR could be supported into year-end on commercial flows, though into the U.S. Thanksgiving holiday there is potential for dollar demand on fund book cleaning. Market participants are digesting more dovish rhetoric from ECB officials on the weekend, though it had very limited influences on price action like recent sessions. Meanwhile, there is a report in by Die Welt that suggests southern European countries are keen for ECB to expand its bond buying program.

    [USD, JPY]
    USD-JPY stalled at trend highs just over 101.90 at the London open. Option related selling went through ahead of 102.00 barriers and it settled into the 101.65 region. In overnight trade speculative names were heavy buyers of USD-JPY and the JPY crosses on equity market gains following last Friday's record close for the S&P 500 and the Dow Jones. Over the last week or so optimism over the U.S. outlook and expectations of a sustained period of easy monetary policy in Japan has increased the demand for yen-funded leverage trades. Option flows on top of USD-JPY are focused on the 101.75-102.00 area into the U.S. Thanksgiving holiday, but there is very little above these levels until 103.00, where a large U.S. name is reportedly holding very significant structures.

    [GBP, USD]
    Cable profit taking increased from 1.6240 in Asia and 1.6225 in Europe. After the recent run higher position traders pared back positions ahead of trend highs at 1.6250-60, which marked the top of the range since early October. The balance of risk is still with the topside though amid positive U.K. fundamentals and a bullish chart pattern. U.K. BBA mortgage approvals data unexpectedly slowed, though after the acceleration in mortgage activity in recent months there wasn't any fallout in the market. Meanwhile, EUR-GBP movement is choppy. It made a move on 0.8360 and then chopped back to 0.8345 on ECB policy talk. EUR-GBP has steadied since it bottomed out at 0.8300 over the ECB rate cut. Corporates have taken advantage of the softer levels, though underlying GBP strength kept bias with the downside and sellers remain from 0.8400 and above.

    [USD, CHF]
    CHF was a touch easier intra-day, taking EUR-CHF back over 1.2300 and USD-CHF back over 0.9100. Ranges remained narrow, but local names saw last Friday's EUR-CHF move to two-week lows of 1.2285 as a buying opportunity, leaving 1.2280 stops intact. CHF-JPY, which has been buoyant of late, pulled back from a new 23-year high of 112.13 in early Europe to trade back at 111.65 as profit taking went through. Switzerland voted on Sunday on a proposal that would have limited executive pay to 12 times that of the lowest paid. 65.3% voted against the plan, which was widely expected.

    [USD, CAD]
    USD-CAD continued to trade on a firm footing. USD-CAD hit 1.0568 highs and then pulled back to 1.0515 by Friday's close. However, underlying dollar strength against the commodity bloc currencies and a bullish chart pattern boosted the dollar pairing in Asia and it extended to 1.0583 highs by early Europe. Aiding the downturn in the CAD weaker oil prices, along with Friday's cooler than expected CPI reading, though retail sales beat expectations. Standing in the way of further USD-CAD upside are offers ahead of 1.0600 barriers. The trend high is at 1.0609, and large stops are likely above there. Buyers are tipped at 1.0540, while chart support is seen now at 1.0520-10.

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