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By XE Market Analysis October 24, 2013 1:52 am
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    XE Market Analysis: Europe - Oct 24, 2013

    Ranges remained narrow in Asia, leaving the FX majors close to Wednesday N.Y. closing levels. The dollar remained heavy, leaving EUR close to outstanding option barriers at 1.3800 and USD-JPY moved along the bottom of the recent range near 97.25. AUD moved over 0.9650 after it benefited from HSBC China flash manufacturing PMI, which came in at 50.9 in October from 50.2 in September. RBA's Lowe talked up the benefits of a softer AUD, but it did not have an impact on the underlying tone. There were other developments, which failed to influence the market, but included Japan weekly MOF flow data, where Japanese investors were net buyers of foreign bonds. Japan PM Abe said that fresh stimulus would be funded by extra tax revenue and not new debt. NZ trade revealed a narrower deficit of N$ 199 mln in September from N$1,234 mln in August after exports surged 16.5% y/y following four months of consecutive losses.

    [EUR, USD]
    EUR-USD continued to probe the topside several times, as it did on Wednesday, but 1.3800 option barriers capped gains. EUR-USD has been one of the quietest currency pairs in the last 24 hours as varying cross-currents reinforced the consolidative tone. A reduction in risk appetite kept EUR-JPY and EUR-CHF on the defensive, which worked against EUR-USD's topside, though underlying dollar heaviness limited downside pressure. A heavy influence from Asian central banks was widely anticipated after increasing central bank activity in local currencies. This has fuelled front running by intra-day accounts and a bullish technical backdrop ensured that the EUR-USD downside was limited to 1.3175 intra-day.

    [USD, JPY]
    USD-JPY continued to chop along the bottom of the daily range. Light dollar demand lifted it into 97.50, where intra-day accounts faded the move. The pace of Wednesday's Asia market correction reinforced downside risk, particularly after semi-official support failed to materialise. Natural buyers between the 200-dma at 97.28 and October-9 lows at 97.12 have kept the downside in check, leaving a rangebound tone. USD-JPY is still inside the October trading range while 96.50 holds and this level is going to be more important for the longer-term outlook. The JPY crosses received a modicum of support on China PMI data and this has offset USD-JPY heaviness to a degree.

    [GBP, USD]
    GBP threatened levels on the topside overnight as GBP-JPY edged up on better China PMI data. The steadier sterling tone was flagged during yesterday's N.Y. afternoon as buyers returned after Cable bottomed out near 1.6120 following the European morning correction. EUR-GBP also met sellers into the 200-dma near 0.8535, which aided the Cable tone. From a fundamental perspective bias is still with higher levels and long-term players are still picking up GBP on dips. However, there has been a notable pick up in the frequency of sell-orders on the Cable topside, which should leave the market more broadly balanced over the remainder of the week. Offers are lined up from 1.6220 to 1.6250 ahead of buy stops from 1.6260.

    [USD, CHF]
    CHF continues to benefit from the more defensive market tone. USD-CHF remains on the heavy side after it registered a negative close near 0.8950 on Tuesday and extended to 0.8910 on Wednesday as the dollar sank on the Fed policy outlook. This tipped EUR-CHF back on a 1.22 handle and it threatens to post further losses, with USD-CHF suspended over option barrier exposure from 0.8900.

    [USD, CAD]
    USD-CAD was underpinned throughout the overnight session following Wednesday's surge over 1.0375 amid the dovish BoC statement. The Bank dropped its mild tightening bias, eliminating the key line seen in September that "a gradual normalization of policy interest rates can also be expected.." The pairing blew through offers from 1.0350 on its way to the highs just shy of 1.0400. There were reports that sellers into 1.0400 were related to a defense of barrier options, though setbacks were shallow overnight, with short term buyers keeping the pair underpinned from 1.0370. Stops are seen now at 1.0410.

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