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By XE Market Analysis October 30, 2013 3:36 am
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    XE Market Analysis: Europe - Oct 30, 2013

    The dollar maintained its month-end bid during the Asian session and ahead of today's FOMC, which is likely to be uneventful in respect of policy developments. However, market participants will be interested to see how the Fed views the U.S. government shutdown and the potential impact on Q4 growth. Economic data included Japan September industrial output, which was slightly below expectations at 1.5% m/m. IMF's Singh warned that tighter funding conditions could weigh on emerging Asia growth and said further tightening may be needed in India and Indonesia. He said Japan needed to bring down public debt and expected China to manage capital outflows. Meanwhile, China overnight and 7-day repo rates hit the highest levels in average weighted terms since June, which reinforced expectations that the PBoC is looking to curb the credit bubble. Elsewhere, Moody's said it had discussed cutting New Zealand's AAA rating due to its current account deficit.

    [EUR, USD]
    EUR-USD traded on the lower side following yesterday's failure to hold 1.3800 and subsequent month-end related dollar demand. It started the session under 1.3750 and intra-day accounts tested the downside to carve out 1.3733 lows. There are natural buyers between 1.3730 and 1.3700 that should absorb any further sell-interest and with the FOMC due to announce its decision after the European close interest may be on the lower side. Into the N.Y. session selling into strength is anticipated.

    [USD, JPY]
    USD-JPY maintained a bid tone after a strong rally on Tuesday. In Asia there was good Japanese importer demand over the fix and a reduction by stale short positions kept the pair underpinned on pullbacks into 98.10. The topside was capped by offers from 98.30 and there are good orders reportedly into the 98.50 region. Price action may be quite slow into the N.Y. morning amid very large option expiries between 98.00 and 98.50. The JPY crosses were in a holding pattern after benefiting on bargain hunting during yesterday's European and N.Y. session. EUR-JPY consolidated close to 135.00, AUD-JPY held above 93.00 and GBP-JPY was steady above 157.50. NZD-JPY had a challenging session after Moody's comments on the NZ AAA rating triggered retail accounts to cut long positions and it headed towards 80.50 from 81.20 in early trade.

    [GBP, USD]
    Cable struggled to sustain 1.6100 on Tuesday, leaving the bias on lower levels into the London close and during the overnight session. GBP was on the back foot and Cable headed into the 1.6025 region after stop losses were tripped through 1.6050. EUR-GBP was boosted to 0.8585 after Nowotny's remarks on EUR strength on Tuesday and then succumbed to profit taking and option related selling as 0.8600 barriers come into view. The U.K. economic calendar is remains quiet and the emphasis will come from the FOMC outcome and month-end flows.

    [USD, CHF]
    USD-CHF gains have underpinned EUR-CHF. The dollar pairing traded out of 0.8950 and pushed up just over 0.9000 on Tuesday, which enabled EUR-CHF to trade at its best levels in a week, over 1.2370. Most of the action in the last day or so has been symptom of reported month-end dollar demand. If USD-CHF decisively breaks 0.9000 and sustains higher levels in the very short term then this will go some way to dampen the underlying dollar bear trend.

    [USD, CAD]
    USD-CAD consolidated recent gains, leaving it just ahead of 1.0450 during the overnight session. The pairing edged out fresh trend highs just above 1.0470 in Asia amid dollar strength and sell-interest via the commodity bloc currencies. Further gains were stymied by option related flows amid outstanding barriers at 1.0500, along with domestic sellers that are reportedly working corporate orders. On the downside bids are seen at 1.0450 to 1.0430.

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