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By XE Market Analysis October 14, 2013 3:19 am
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    XE Market Analysis: Europe - Oct 14, 2013

    The FX market was quieter than usual due to holidays in Japan and Hong Kong, while the U.S. and Canada are also closed today. Weekend developments were negative, leaving sideways movement via JPY after last week's losses. The dollar was lower overall, leaving EUR above 1.3550 and Cable just shy of 1.6000. U.S. budget talks broke down just three days before the debt ceiling deadline and the U.S. government remains closed. A U.S. default is not the baseline scenario, but markets may trade very nervously in the next few sessions without more positive news. Elsewhere, China's trade surplus narrowed sharply to $15.2 bln after September exports fell 0.3% y/y amid weak global demand in the face of Fed taper risk into September, along heavy capital outflows in South East Asia, which saw exports to the region crumble. China inflation jumped on food price gains to sit at 3.1% y/y from 2.6% in August and PPI fell 1.3% y/y. In Australia, August home loans plunged 3.9% m/m after a 2.1% rise in July.

    [EUR, USD]
    EUR-USD experienced a very narrow trading range in Asia. Early dollar selling pressure lifted it out of 1.3540 to the 1.3565 region. However, follow through was fairly limited. The EUR crosses, which were influential last week, held on to the majority of the recent gains despite the rise in risk aversion. EUR-JPY traded a narrow range just above 133.00 and EUR-CHF only pulled back a touch from 1.2350 to the 1.2330 region on negative weekend developments.EUR-USD looks poised for a session of sideways movement after the recent lack of progress outside of 1.3500 and 1.3600. It is widely thought that an outstanding 1.3450:1.3650 range binary option may be limiting movement.

    [USD, JPY]
    USD-JPY fell in very early trade, dipping from just over 98.50 to 98.10 on leverage selling after weekend negotiations between the White House and the Republican broke down. Senate Leader Reid was still optimistic that a deal could be reached, though the tone remained fragile. USD-JPY's downside ahead of 98.00 was underpinned by Japanese bank customer flow and light retail interest, but it chopped mid-range near 98.30 for a large part of the session due to today's Japanese market holiday. The JPY crosses consolidated after last week's heavy retail interest and fund related demand, leaving EUR-JPY above 133.00 and AUD-JPY near 93.00.

    [GBP, USD]
    Cable is trading on the supportive side. It found buyers into 1.5950 overnight after it bottomed out ahead of 1.5900 late last week. The U.S. debt ceiling negotiations broke down, which weighed on the dollar tone and Cable eyes another push on the 1.6000 level. EUR-GBP is still holding on to a bid tone, but was unable to sustain a move over 0.8500 late week. Most of the cross demand of late has been pinned on corporate flows, but a supranational account has limited gains. It should be a quiet session today with U.S. and Canada closed after holidays in Japan and Hong Kong in Asia.

    [USD, CHF]
    CHF consolidated recent losses. News that U.S. debt ceiling talks broke down on the weekend triggered an overnight move in EUR-CHF from 1.2350 to 1.2330, but it has edged up in early Europe, leaving it relatively close to recent highs. USD-CHF is trading close to the 0.9100 region and is likely to maintain narrow ranges as participants await news out of Washington. In recent sessions, appetite to buy the EUR-crosses limited the USD-CHF rally, but the downside looks limited now between 0.9100 and 0.9060. EUR-CHF is also is much better shape than the last week or so and support should under from 1.2330 to 1.2300.

    [USD, CAD]
    USD-CAD headed back into the 1.0350 region from 1.0370 Asia Pacific opening levels. The downturn in the dollar pairing came amid news that the latest debt ceiling talks in Washington had broken down. Bids between 1.0350 and 1.0330 could come under pressure over the course of the session. Markets are also likely to be thinner than usual due to today's market holiday in the U.S. and Canada. On the topside offers are noted from 1.0380 to 1.0400.

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