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By XE Market Analysis October 23, 2013 2:39 am
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    XE Market Analysis: Europe - Oct 23, 2013

    The Asia session was dominated by an afternoon move out of speculative positions after a Bloomberg story, which highlighted a rise in China bad loans, unnerved investors. AUD-JPY turned sharply from 95.65 to hit 93.77 lows and this had a knock on impact on USD-JPY and AUD-USD. In USD-JPY the key 97.50 support level gave way after a plunge from 98.20 to 97.25, while AUD-USD sank from 0.9750 to 0.9636. The downturn overwhelmed any supportive benefit that came from a higher than expected Australia CPI reading of 1.2% in Q3, which eliminated any RBA rate cut risk that was in the market. Meanwhile, EUR and Cable held firm near 1.3770 and 1.6220, respectively, as yesterday's disappointing September U.S. payroll reading reinforced expectations that the Fed is on hold well into 2014.

    [EUR, USD]
    EUR-USD maintained a bid tone after yesterday's disappointing U.S. NFP reading reinforced the current Fed policy stance, which weighed on Treasury yields and the dollar. EUR-USD topped out just over 1.3790, but corrective action should remain limited, with the bias on a move through option barriers at 1.3800. There are expectations that Asian central banks have a lot of dollars to recycle and this is expected to fuel EUR demand on dips.

    [USD, JPY]
    USD-JPY and the JPY crosses retreated on long liquidation as equity markets rolled over after an encouraging start. The move was pinned squaring on China default fears, though looking beyond the headlines the story wasn't quite as bad as it seemed as China banking practices are in line with the developed world. USD-JPY was due a sustained downside move after yesterday's rush into speculative positioning triggered a USD-JPY swing from 97.85 into 98.50 despite broad dollar losses elsewhere. In Asia, Japanese exporters were good sellers early on after offers held at 98.50 yesterday and this move gathered pace as EUR-JPY saw good flows back through 135.00 and heavy position reduction went through AUD-JPY. The downturn in USD-JPY was exacerbated by U.S. fund interest and a lack of semi-official interest on the downside, which was widely reportedly since Monday. When this interest did not materialise USD-JPY headed below 97.30.

    [GBP, USD]
    Cable is underpinned ahead of 1.6200 in the aftermath of the NFP release. Follow through demand was hampered to a degree by EUR-GBP's move up to 0.8495, which Cable over 1.6250 in Asia. The technical backdrop for Cable is still skewed to higher levels, though there has been an increase in the frequency that longs are cutting back positions. Near-term risks for GBP traders include todays BoE minutes, forward looking CBI industrial trends data on Thursday and Friday's first estimate of Q3 GDP.

    [USD, CHF]
    USD-CHF broke 0.8950 barriers on Tuesday. Shorter term moving averages crossed over, reinforcing the bearish market structure. Yesterday's weak close should leave immediate risk on the downside and lows from late February 2012 are coming into view near 0.8930 and then levels from early November 2011 ahead of 0.8900. Note, in early October, speculation of sovereign flows under 0.9000 surfaced and this limited downside potential. It only closed under 0.9000 on October-3 and then experienced a sideways trading pattern between 0.9000 and 0.9200.

    [USD, CAD]
    USD-CAD gravitated to levels back over 1.0300 as risk appetite evaporated in Asia on China default fears. During Tuesday's session it made another failed attempt to clear out heavy support between 1.0270 and 1.0250 as U.S. NFP data triggered broad dollar selling. After basing at 1.0272 it headed higher again.

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