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By XE Market Analysis October 16, 2013 3:34 am
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    XE Market Analysis: Europe - Oct 16, 2013

    The FX majors and the commodity bloc currencies consolidated in Asia as the market waits on a potential deal from Washington D.C. There were conflicting reports, but overall the signs are positive, which has alleviated some of the pressure on speculative positions. Ahead of the open, Fitch placed the U.S. rating on negative watch due to political brinkmanship and reduced financing flexibility. It aimed to resolve the negative status by the end of Q1 2014. The reaction in FX was muted and the U.S. Treasury used the announcement for political capital, stating that the decision reflects the urgency in which Congress should act to remove the threat of default. Other developments in Asia were largely overlooked due to looming U.S. debt ceiling deadline. However, the latest Australia Westpac/MI leading index dipped 0.1% to 294.5. NZ Q3 CPI came in at 0.9% q/q and 1.4%y/y, which was close to expectations.

    [EUR, USD]
    EUR-USD climbed above 1.3500 late on in Tuesday's N.Y. session and extended to 1.3535 amid the Fitch rating action against the U.S. The contrasting headlines on how close D.C. is to reaching a deal led to some price chop and it backed into 1.3505-10. Overall, ranges were still relatively narrow and markets are still at the mercy of developments in D.C. The dollar should see kneejerk demand once a deal is reached. However, one encouraging aspect for EUR longs is the decent support into the 1.3450-60 region, which has held since the middle of September.

    [USD, JPY]
    USD-JPY was choppy due to conflicting headlines out of Washington. Some reports suggested a deal could be just hours away, while others said that no agreement has been reached yet. USD-JPY fell from 98.50 to 98.15 early on and then headed back through 98.50 over the Asia afternoon. Overall, it has been one of the currency pairs that managed to hold on to recent gains and the JPY crosses are also consolidating towards the upper end of the recent trading range, leaving EUR-JPY near 133.00 and AUD-JPY above 93.50. In USD-JPY there are still good bids from 98.00 to 97.70 and through 97.50. Offers have capped the upper end of the range from 98.70 since it gave up the 99 handle late September.

    [GBP, USD]
    Cable is trading close to the 1.6000 region after it met good buyers on dips during Tuesday's session. There was disappointment that U.S. politicians had still not reached a deal on the debt ceiling and this weighed on the dollar tone. In recent sessions the Cable upside has been limited over 1.6000 and this is likely to be the case again. There may be some potential price chop during the European morning session from U.K. labour market data, which should confirm the pick up in U.K. employment.

    [USD, CHF]
    EUR-CHF pulled back below 1.2350 versus yesterday's one month highs just over 1.2375. Better risk appetite weighed on the CHF, which helped USD-CHF move to near 0.9180. The downturn in EUR-CHF was influenced by a USD-CHF pullback from 0.9180 to 0.9120. However, the CHF is likely to meet selling pressure on upticks, assuming Washington reaches a budget deal ahead of Thursday's debt ceiling deadline. Strong resistance is marked at 1.2400, which proved a sticking point on multiple occasions in recent months.

    [USD, CAD]
    USD-CAD was slightly softer near 1.0370 compared with yesterday's highs near 1.0390. The pairing followed the USD broadly higher on Tuesday, on the back of fresh hope on a debt agreement in Washington. However, momentum evaporated on conflicting headlines regarding how close Washington is to a deal. Activity remains light and prices will drift along until there are concrete signs of progress.

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