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By XE Market Analysis October 29, 2013 3:34 am
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    XE Market Analysis: Europe - Oct 29, 2013

    The dollar maintained a supportive tone overnight. Activity in Asia was dominated by a sharp drop in AUD-USD, which encouraged EUR-USD selling and relatively heavy selling in Cable. The trigger for AUD were comments from RBA Governor Stevens, who said that AUD was likely to be materially lower in the future and also gave a fairly subdued economic outlook. USD-JPY's upside was limited on JPY-cross weakness as stocks in the region were weighed by earnings results. Japan data was broadly positive and included a 3.1% y/y rise in retail sales. Household spending rose 1.6% m/m and 3.7% y/y, which was much stronger than expected, while unemployment dipped to 4%. The PBoC also provided liquidity for the first time in two-weeks via a short term operation in CNY 13 bln.

    [EUR, USD]
    EUR-USD started the session under 1.3800, which encouraged short term selling on upticks. Heavy losses in AUD-USD fuelled light follow through interest as intra-day accounts headed back to the USD and forced EUR into 1.3770. Follow through selling was absorbed by Asian sovereign names and reports of heavy EUR-AUD demand and this left EUR-USD in familiar territory near 1.3790 by the time European market participants entered the market.

    [USD, JPY]
    USD-JPY and the JPY-crosses traded on the heavy side amid the risk-off tone and heavy unwinding of AUD-JPY and GBP-JPY longs. The former was weighed by comments from RBA Governor Stevens and it fell from 93.50 to 92.70, while GBP-JPY tumbled from 157.70 to 156.75 as GBP continued to experience repositioning by fund names as U.K. data shows signs of moderation. Japanese data did not help the equity market tone and specs concentrated on position adjustment. USD-JPY edged off the 97.70 area and move into 97.45, where domestic banks have decent bids and these are layered into the 97.00 region.

    [GBP, USD]
    GBP-USD extended losses overnight after it again failed to hold the 1.6200 handle on Monday and slid under 1.6100 in Asia. On Monday it responded to signs that U.K. data is beginning to moderate and this fuelled liquidation by GBP-JPY longs overnight. Cable extended to 1.6065 as good size stops through 1.6100 gave way. Buyers came back in once the interest was filled, but selling into strength looks likely in European trade.

    [USD, CHF]
    USD-CHF continued to consolidate overnight and it found support last week under 0.8900. The bulk of the heavy lifting in USD-CHF from under 0.8900 came on Swiss name demand and this has enabled EUR-CHF to recover from the 1.2280 region back to 1.2350. The underlying dollar tone is still weak though and this may continue into Wednesday's FOMC decision, where a steady hand is anticipated. Given the USD-CHF influence on broader swissy movement further losses are likely to be limited in the early part of the week. Only a USD-CHF move back over 0.9000 would change the short-term picture.

    [USD, CAD]
    USD-CAD was steady overnight, trading inside a 1.0425-55 band. Domestic names were sellers into the highs, with talk of corporate interest heard. Bids are in place from 1.0400, with sellers seen at 1.0470, and barrier options at 1.0500. Downside movement is likely to be limited as the recent break higher will fuel short term dollar buyers on dips.

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