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By XE Market Analysis September 16, 2013 6:03 am
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    XE Market Analysis: Europe - Sep 16, 2013

    Dollar losses dominated the Asia session in response to news that Larry Summers withdrew his candidacy for Fed Chairman. The dollar gapped lower at the open and remained under pressure throughout the session, which left EUR over 1.3350, Cable above 1.5950 and USD-JPY under 99.00. AUD also surged from 0.9250 to 0.9395 highs and then settled under the 0.9350 region over the course of the Asia afternoon. Other positive developments over the weekend included the deal between Russia and the U.S., which will see Syrian chemical weapons destroyed by the middle of 2014. A Reuters exclusive claimed that Germany is working on a plan to complete Eurozone banking union without having to change EU law.

    [EUR, USD]
    EUR-USD benefited from both a rise in risk appetite and the Summers news, which raised expectations that the Fed will maintain dovish forward guidance even if it begins policy tapering this week. EUR started the session around 1.3300 and took off to mark highs near 1.3380. There was speculation near the highs of central bank selling pressure, which put a top in place, though corrective action was limited to 1.3355, leaving immediate bias turned to higher levels.

    [USD, JPY]
    USD-JPY experienced an outsized reaction to the weekend developments, which included the Syria and then the Summers news. It fell from 99.40 to 98.46 lows on the kneejerk reaction in early Asia Pacific trade. There was a decent correction back to 99.10 on very heavy AUD-JPY demand from 91.90 to 92.80 highs then prices settled around the 92.30 region. The JPY crosses were underpinned due to the rise in risk appetite and this limited USD-JPY's downside to a degree over the course of the Asia session. However, price action was exacerbated in part due to the Tokyo holiday.

    [GBP, USD]
    Cable surged on Fed Chairman news, which weighed heavily on the dollar tone. The Cable move over 1.5950 was limited by very strong offers related to large outstanding option barriers at 1.6000. These could cap for a time, though the underlying tone is still firmly in favour of further topside gains. EUR-GBP has found a modicum of support on dips as option exposure absorbed Friday's downturn through 0.8360. Long-term barriers are live at 0.8350 and good demand is tipped towards 0.8330-35, which is a key hedging level as it represents 1.2000 on the GBP-EUR reciprocal.

    [USD, CHF]
    The CHF was a bit higher overall as USD-CHF losses influenced during overnight trade. A USD-CHF move under 0.9250 forced EUR-CHF into 1.2340 in thin Asia Pacific trade. Into the Fed meeting on Wednesday the CHF may maintain a supportive tone. However, news that Summers is now out of the race for the Fed Chair position is a positive for risk assets and in the long-term the CHF should head lower amid demand for leverage positions. Note, there is also the SNB meeting to digest later this week. It is expected to keep policy unchanged and includes the lower limit in EUR-CHF at 1.2000.

    [USD, CAD]
    USD-CAD slumped from 1.0350 in Asia and moved into 1.0300 by the time the European session got underway. Leverage names and hot money flows into risk-related currencies tipped USD-CAD into the 1.0285 region, which triggered stop reverse positions. The near-term bias on a test of 1.0250 and if this levels gives way then the 200-dma lower down is a potential target. However, appetite for risk assets and commodity bloc currencies could drop off with the FOMC outcome on the horizon.

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