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By XE Market Analysis September 18, 2013 2:07 am
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    XE Market Analysis: Europe - Sep 18, 2013

    The was no interest to take on fresh positions ahead of today's FOMC outcome. This left the G10 inside familiar trading ranges. EUR-USD remained near the 1.3350 region, Cable traded close to 1.5900, USD-JPY traded in front of 99.00 and AUD-USD moved quietly either side of 0.9350. We expect the Fed to start with a baby step -- a $10-15 bln cut in Treasury purchases. MBS levels should remain intact in deference to worrying deterioration in mortgage activity. But there's been sufficient improvement, especially the labor market, to give the Fed the opportunity to finally pull the taper cord on QE3. A rise in China August house prices by 8.3% y/y and record rises for Shanghai (+15.4% y/y) unnerved investors over potential property price curbs from Beijing. There was more evidence that activity in Australia is improving as the leading index rose 4.1% in July, which is above the long-term trend. The NZ Q2 current account deficit of N$1.25 bln also beat expectations.

    [EUR, USD]
    EUR-USD maintained a holding pattern near the top of the recent range. Large offers remained from 1.3380 up to 1.3400, where outstanding option barriers are tipped ahead of resistance at 1.3410. EUR drifted lower in early trade, but then backed up from the 1.3345-50 region to 1.3365 as European accounts entered the market. Bias on the EUR chart is with the topside. Taper-lite and dovish forward guidance from the Fed would trigger a stop hunt higher up.

    [USD, JPY]
    USD-JPY marked time just in front of 99.00 after offers into 99.40 held for the second consecutive session. There was only limited two-way action, though there was more talk of very strong bids from large Japanese accounts from 99.00, which kept a stable tone. The outperformance in the Nikkei was also a positive lead, though there was obviously a reluctance to add fresh positions ahead of the Fed decision. The short term bias is fairly mixed at current levels after recent failure to sustain either direction. Narrow ranges should persist into the N.Y. session.

    [GBP, USD]
    Cable has struggled to sustain higher levels since it topped out just over 1.5960 at the London open on Monday. There is talk of persistent U.K. clearer selling on upticks, while European accounts have propped up EUR-GBP under 0.8400. GBP was overdue a period of corrective action following the recent outsized gains. Overall, Cable is still only a short distance from recent highs, though large barriers at 1.6000 and resistance above could cap in the near-term. EUR-GBP has also met decent support since it bottomed out ahead of 0.8350 barriers last Friday. The BoE MPC minutes are due today. However, after last week's neutral sounding comments to the Treasury Select Committee there may be limited scope for surprise.

    [USD, CHF]
    USD-CHF maintained a stable tone overnight and it still a relatively close distance from Tuesday's highs around 0.9280 and Monday's Asia Pacific opening levels just ahead of 0.9300. Early interest out of Asia today to buy dollars ran into light selling from 0.9270 and it drifted in a narrow trading range ahead of the Fed decision. EUR-CHF has also met decent offers that were lowered into 1.2380 after last week's rejection of resistance from 1.2415 and this is restricting USD-CHF's ability to rally.

    [USD, CAD]
    USD-CAD consolidated close to 1.0300 overnight. Yesterday's move into 1.0275 ran out of steam as sell stops at 1.0270 held and it drifted back towards 1.0300. Trade was listless overall as market participants await the FOMC outcome. Corporate bid interest is still anticipated on dips and this should continue in the very near-term. Sellers have lowered offers slightly to the 1.0320 area and more interest is tipped at 1.0330 and 1.0340-50.

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