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By XE Market Analysis September 3, 2013 1:54 am
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    XE Market Analysis: Europe - Sep 03, 2013

    The dollar was relatively stable throughout the Asia session as Monday's U.S. holiday left ranges tight. EUR-USD continued to trade under 1.3200 after it broke lower into the European close. USD-JPY was an early mover and yesterday's break above 99.00 encouraged follow through demand up to 99.70. Japan Finance Minister Aso said he will tell the G20 that Japan will hike the sales tax as planned and will consider an extra budget in order to offset any negative impact on the economy. AUD rallied from 0.8980 to 0.9050 after the RBA left policy unchanged at 2.5% as expected. The accompanying policy statement reinforced expectations that the RBA is now on hold for the foreseeable future. Meanwhile, SNB's Danthine was the latest SNB board member to back the CHF cap for now after Jordan made similar remarks on Monday. U.K. August BRC like-for-like retail sales rose 1.8% y/y from 2.2% previously.

    [EUR, USD]
    EUR-USD traded under 1.3200 throughout the Asian session after it broke lower into Monday's European close. EUR struggled to rally despite an improvement in risk appetite and good Eurozone data. Short term accounts were unwilling to give up dollar longs built up late last week and the improvement in risk appetite tended to weigh on CHF and JPY, rather than the USD perhaps due to this week's event risks. The ECB are still likely to maintain a dovish policy stance and U.S. data should be strong enough to enable the Fed to taper policy in September. In the near-term EUR risk is on support at 1.3135-45, which are long-term moving averages.

    [USD, JPY]
    USD-JPY and the JPY crosses maintained a firmer tone in Asia after risk appetite improved on Monday as the risk of an imminent Syrian air strike faded and positive PMI data from China, U.K. and the Eurozone. USD-JPY edged up through 99.50 and extended to 99.70 as stocks opened on the firmer side. Japan's Nikkei added more than 2.5% as USD-JPY is on course to test the 100.00 level. The JPY crosses benefited from investment trust launches, which are noted throughout the week. EUR-JPY extended to the 131.50 area, GBP-JPY closed in on 155.00 and AUD-JPY rallied from 89.10 to 90.00 over the course of the session.

    [GBP, USD]
    GBP consolidated gains after Monday's surge in U.K. manufacturing PMI to 57.2 in August, which was the highest level since February 2011. The July reading was revised to 54.8 from 54.6 previously and new order posted the strongest levels since 1994. Cable tested 1.5600, but reverted to levels around the 1.5550 region as the dollar strengthened. However, EUR-GBP was still heavy around 0.8475 and could threaten barriers at 0.8450 as the EUR eyes further losses ahead of the ECB policy meeting later this week. In the short term, the Cable bias should remain with the topside. Last week's move under 1.5500 ran into good support and long-term money is still looking to position for further gains as BoE policy underpins expectations of a sustained recovery in the U.K.

    [USD, CHF]
    EUR-CHF is stable around the 1.2330 after it edged out a modest rally on Monday amid a pick up in risk appetite. The immediate risk of military action against Syria faded further as U.S. President Obama also decided to put the issue to vote in Congress, which will reconvene on the September 9th. Aiding the better tone was encouraging manufacturing PMI data from China, the Eurozone and the U.K.. Upward momentum was a bit slow over 1.2330 due to a congestion of offers up to 1.2350. USD-CHF is buoyant around 0.9350 on underlying dollar strength and eyes a test of the 0.9400 region.

    [USD, CAD]
    USD-CAD held firm overnight after it rallied out of 1.0520 to 1.0550 during Monday's session. A rise in risk appetite did not really impact the dollar pairing. Instead, short term account keyed off the underlying technical backdrop and dollar strength. From a technical perspective there is still scope for a sustained move on higher levels, with early July highs at 1.0609 a near-term target. There are still very good offers into the 1.0570 area related to outstanding option structures between 1.0575 and 1.0600. Buyers are noted now from the 1.0520-30 area and through 1.0500.

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