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By XE Market Analysis November 26, 2013 3:15 am
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    XE Market Analysis: Europe - Nov 26, 2013

    Position adjustment may begin to have an influence as the market slows down into the U.S. Thanksgiving holiday. Usually there is a pick up in dollar demand as funds close books ahead of the year-end. However, the USD has stormed higher in recent weeks against JPY and held firm against the commodity bloc, which could potentially dampen scope for further dollar upside this week. EUR is still moving either side of 1.3500, bit it could sustain a year-end rally if it successfully clears 1.3600 and holds. BoE's Carney and co will speak to the Treasury Select Committee today and GBP longs have already lightened positions in preparation. This reinforced the recent theme of topside failures in Cable into 1.6250-60, which marked the top of the range in October and are also levels from early January.

    [EUR, USD]
    EUR-USD was supported on dips after yesterday's shakeout from over 1.3550 to 1.3490. More dovish comments from ECB officials filtered through, though it did not have a lasting impact, but rather reinforced the current trading pattern either side of 1.3500. Comments from PBoC Governor Zhou provided support. He said that French debt was one of China's favoured investments and the EUR was an important currency in its reserves, which lifted it back to the 1.3540 region before short term accounts capped. There are sellers anticipated over 1.3550 in the near-term and this trading pattern should continue while 1.3600 holds. There is still conjecture that EUR could be supported into year-end on commercial flows, though into the U.S. Thanksgiving holiday there is often potential for dollar demand on fund book cleaning.

    [USD, JPY]
    USD-JPY came under early pressure as Japanese accounts rebalanced long positions after 102.00 held on Monday. Stops featured on the way down and it edged out lows near 101.35 in thin trade. There were dollar buyers on dips, leaving it near 101.50 late on. However, appetite to aggressively test higher levels was limited due to an overhang of commercial flows and interest related to large 101.75 expiries and outstanding 102.00 barriers. The underlying tone is still skewed to a test of late May highs near 102.50. However, spec positioning is heavily skewed to further yen weakness and the risk is more sideways to lower action ahead of the U.S. holiday.

    [GBP, USD]
    GBP longs pared back positions on Monday, which forced Cable to intra-day lows near 1.6135. Some of the flows were thought to be cross related, with reports of EUR-GBP support and GBP-AUD supply going through. GBP is still a good long-term bet, but Cable has experienced difficultly in clearing 1.6260 since early October and the market lacks the liquidity to overcome decent size offers higher up. The focus today will come from the testimonies from BoE Governor Carney and MPC board members to the Treasury Select Committee, though after the BoE minutes and the Inflation Report the shock value is bound to be limited. Some traders are already looking to Wednesday when the second estimate of Q3 GDP is due for release.

    [USD, CHF]
    EUR-CHF regained its poise on Tuesday as Swiss names took advantage of the brief move under 1.2300 last Friday. In recent months when EUR-CHF has traded under 1.2300 SNB board members have talked up the cross. This was the case again yesterday when SNB's Jordan reminded the market after the European close that it is prepared to buy unlimited FX to defend the cap and it will remain in place as long as it needed. Jordan said from today's view there is no need to drop the cap and it does not rule out using other measures and will keep all options open. The SNB may have felt it necessary to drop a hint on policy after the pick up in ECB rhetoric, which has included talk of negative deposit rates.

    [USD, CAD]
    USD-CAD peaked at trend highs of 1.0583 on Monday, just shy of the July 8 peak of 1.0585. A move over 1.0609 would take the pairing to better than 2 year highs, where 1.0657 was posted in October of 2011. In the meantime however, defense of 1.0600 barrier options is expected, though stops are noted at 1.0610. Canada's cool-ish CPI data release on Friday continued to weigh on the CAD, while weaker oil prices in the wake of the Iran deal has kept support under USD-CAD. However, a moderation by recent longs did see the pairing ease toward 1.0525 overnight.

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