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By XE Market Analysis August 1, 2013 6:02 am
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    XE Market Analysis: North America - Aug 01, 2013

    The dollar was supported overall in Asia and Europe as market participants digested the Fed policy statement. On balance, the market judged that Fed policy tapering was still on for September if data continues to improve. EUR pulled back from 1.3300 and ebbed under 1.3250 despite better than expected Eurozone PMI as the focus remained on policy decisions from the ECB and BoE. GBP posted a modest correction, which lifted Cable out of 1.5135 to 1.5200. Price action was influenced by EUR-GBP losses, though U.K. manufacturing PMI also pointed to more evidence of a U.K. recovery. Elsewhere, USD-JPY benefited from investment trust flows, which lifted it to 98.80, while AUD-USD maintained a bearish tilt under 0.9000. China official PMI data came in at 50.3 in July from 50.1 in June, while the HSBC/Markit reading was confirmed at 47.7 in July from 48.2 in June as expected.

    [EUR, USD]
    EUR-USD ebbed lower under 1.3250. It topped out at 1.3300 overnight after 1.3345 marked the top of the range after the Fed policy statement. Market participants latched on to some dovish tweaks in the statement. However, in the big picture the Fed is still much closer to policy tapering than the ECB, which is expected to stay the course on its dovish stance despite evidence that the Eurozone economy may have turned a corner. Two U.S. names have released bearish EUR-USD trade recommendations today and we also see scope for more downward pressure. In early July when ECB unofficially offered guidance on policy the EUR traded into 1.2755 and it was only Bernanke's reassurance on Fed policy that dramatically pulled the rug from under the ECB. Draghi should reassert the policy stance and this will cap the EUR. Note, due to the pending ECB announcement there was no reaction to the better manufacturing PMI data.

    [USD, JPY]
    USD-JPY surged to 98.80. There was heavy dollar demand from leverage names and real money. The Nikkei performed well after the Fed policy statement and earnings, which encouraged short term funds, while real money activity was pinned on fresh monthly investment trust activity. The marked dollar gains turned the technical backdrop, which had looked bearish following last week's failure over 100.00 and subsequent moves under 98.00 this week. The move back over 98.00 in Asia boosted momentum indicators and fed into early European gains, which cleared resistance at 98.57. However, offers are beginning to weigh from the top of the Ichimoku cloud at 98.76 to 99.00.

    [GBP, USD]
    GBP made up ground into the U.K. manufacturing PMI, which beat expectations, and ahead of the BoE policy outcome. Cable overcame an early dip from 1.5160 to 1.5135 and headed to 1.5200-10. EUR-GBP repositioning was a major influence on Cable. The cross fell from 0.8755-60 in early Europe and reached 0.8703 lows as the EUR came under pressure ahead of the ECB policy outcome. EUR had more room on the downside than GBP, which had underperformed since Monday in anticipation of more detailed information on the BoE's formal forward policy guidance announced in July. GBP gains are likely to wane from here until the BoE policy outcome is revealed.

    [USD, CHF]
    USD-CHF is consolidating around 0.9300. It firmed up from the 0.9270 area in early Europe versus kneejerk lows of 0.9230 in the wake of the Fed policy statement. USD-CHF remains in a bear trend and selling pressure was noted on upticks after it broke a series of support levels between 0.9300 and 0.9265-70 on Wednesday. However, today's ECB policy statement will drive movement before the broader dollar tone reasserts itself on Friday when NFP data is due. EUR-CHF is still trading on the heavy side just in front of 1.2300 after USD-CHF weakness forced it into 1.2305 on Wednesday. In the last three weeks the gradual move lower reinforces expectations that it will eventually test the 200-dma and support between 1.2220 and 1.2200.

    [USD, CAD]
    USD-CAD stabilized following Wednesday volatile action. After the fallout over the Fed policy statement USD-CAD has reverted to levels that were seen prior to yesterday's U.S. and Canada GDP releases. However, the 1.0300-10 area, which provided support on Wednesday, has now capped and it edged off 1.0300 to 1.0280 during the European morning as equity markets provided positive guidance for CAD$. Dollar buyers are noted from 1.0260 and under 1.0250, which marked the bottom of the range on Wednesday.

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