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By XE Market Analysis September 11, 2013 3:30 am
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    XE Market Analysis: Europe - Sep 11, 2013

    The G10 FX is consolidating in early Europe, but the risk backdrop is positive. U.S. President Obama has postponed a Congress vote on military action against Syria and will pursue the diplomatic route after Russia proposed a Syrian handover of all chemical weapons. Western leaders are trying to put a timeline in place and U.S. and Russia will meet today to discuss the issue. The Asian calendar was quiet except for positive survey data from Japan and Australia. The better batch of August China data is still supporting risk appetite and JPY and CHF are on the weaker side. The dollar is mixed as the shadow of next week's FOMC outcome is beginning to reduce fresh positioning. For example, EUR benefits on short position reduction, but there is no appetite to add fresh longs. GBP is still holding up due to underlying economic activity. Today's U.K. employment report will be influential given the 7% employment threshold that was outlined in the BoE's forward guidance

    [EUR, USD]
    EUR-USD ranges remained narrow. It headed higher on the back of strength in EUR-JPY and EUR-CHF. However, after edging up from 1.3265 to 1.3280 it stalled for the third consecutive session and drifted back to 1.3250 ahead of the Asia close. Very large offers continue to put a top in place ahead of 1.3300 and apart from a reduction in stale short positions there is still no appetite to build long positions at current levels. This could be the case until next week when the impetus will come from the FOMC outcome.

    [USD, JPY]
    USD-JPY remained buoyant as risk appetite held up overnight. There was early interest from Japanese names taking advantage from the close over 100.00, but any corrective action met speculative activity. A small pullback from the 100.40 area to 100.10 met good demand and option barriers at 100.50 were extinguished during the Asia afternoon. There was general yen selling, which kept EUR-JPY, AUD-JPY and GBP-JPY elevated. Fading Syrian risk, an improvement in regional economic data and a steadier tone across emerging markets has revived appetite for speculative positioning. There is also confidence in the long-term outlook on Japan as BoJ have indicated that it will evaluate the impact from the sales tax hike and ease further if needed. PM Abe has also asked Economy Minister Amari to compile a stimulus package by the end of September. A Japanese business conditions survey for Q3 surged, with the reading for large manufacturers reaching the highest levels since Q3 2009.

    [GBP, USD]
    Cable moved over 1.5740 overnight as longs position for a push on 1.5750. We think specs are positioning to clear out the major June top just above 1.5750 barriers ahead of Carney's testimony to the Treasury Select Committee on Thursday. GBP is still benefiting from the recent elevation in market rates amid an extended run of better than expected U.K. data. The move higher in Cable was supported by GBP-JPY and GBP-CHF gains. GBP-JPY cleared 158.00 for the first time since August 2009, while GBP-CHF consolidated gains over 1.4700.

    [USD, CHF]
    EUR-CHF regained topside impetus as it benefited on the positive developments on Syria. Risk appetite improved amid news that U.S. will pursue the diplomatic route after Syria agreed to place chemical weapons under international control, based on Russian proposals. EUR-CHF consolidated close to 1.2400 after it extended to the 1.2410 area overnight. The upturn in risk appetite also enabled USD-CHF to overcome Monday's weak close and it threatened offers at 0.9370 in late Asia.

    [USD, CAD]
    USD-CAD steadied after it recovered from Tuesday's three-week lows at 1.0331. Corporate buying interest was prevalent around the lows and it prompted a move back over 1.0360. However, the better risk backdrop continues to help CAD$, though oil price weakness could offset to a degree. These cross currents are likely to result in narrow trading ranges.

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