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By XE Market Analysis August 15, 2013 6:02 am
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    XE Market Analysis: North America - Aug 15, 2013

    The dollar maintained a slightly softer tone. USD-JPY losses stood out in Asia as Japanese policy makers ruled out a corporate tax cut due to its lack of effectiveness. GBP posted the best moves in Europe as U.K. retail sales surged in July, which lifted Cable to the 1.5600 region. EUR was uneventful again, but this time close to 1.3300 compared with the 1.3250 region on Wednesday. AUD benefited on overnight reports that China is providing stimulus via the big four banks, which have agreed funding for infrastructure projects to three mainland provincial governments. Today's U.S. calendar is packed, with CPI, jobless claims, the Empire State index, the Philly Fed index, industrial production, TIC flow data, and the NAHB housing market index all on tap.

    [EUR, USD]
    EUR-USD maintained a narrow range. A move over 1.3300 overnight met a large Asian account offer at 1.3310 and put a top in place. In early Europe, the dollar drifted a bit higher and the EUR headed back to 1.3280, though follow through was lacking. Cable's move into the 1.5600 region has guided EUR interbank, though EUR-GBP's move to 0.8525 weighs and EUR-CHF and EUR-JPY also experience limited upside as equity markets struggle in quiet trade. The bias for EUR-USD is still on lower levels and European backed bids may come into play on U.S. data strength. Orders are noted into 1.3250-60 and ahead of sell stops at 1.3230.

    [USD, JPY]
    A rollover in risk appetite weighed on USD-JPY and ended three sessions of gains. There is disappointment over the lack of progress on economic and fiscal reforms after Japanese officials ruled out corporate tax cuts overnight. However, officials in the cabinet sound like they are still open to reforms, but a corporate tax cut would have a limited impact as only 30% of Japanese firms are impacted by corporate tax rates. Officials are still considering corporate tax cuts on capital expenditure, according to FinMin Aso, which could have a greater impact as it would broadly support Japanese corporates. USD-JPY may struggle in the short term due to Friday's option strikes at 98.10, 97.50 and 97.10 in several yards at each level. In the medium term there is still potential for yen outflows from investors. The latest weekly data revealed that Japanese investors bought the largest amount of foreign bonds since August 2010 (approx. $16.5 bln), which is the sixth consecutive week of net buying.

    [GBP, USD]
    Cable hit trend highs as U.K. retail sales surged 1.1% in July, continuing the run of better than expected U.K. economic data. Cable rallied out of 1.5520 to 1.5550 ahead of the release and extended to 1.5590. The technical backdrop points to further gains, though for a short period option congestion at 1.5600 could cap ahead of resistance at 1.5635. The strength of the data will keep money market rates elevated and it will be interesting to see if BoE Governor Carney or other BoE officials push back against expectations. The combination of a sustained U.K recovery and easy BoE policy has seen a notable pick up in real money demand.

    [USD, CHF]
    CHF consolidated Wednesday's losses. EUR-CHF moved either side of 1.2400 since the Asia afternoon, while USD-CHF is steady around 0.9330 after it stalled around the 200-dma overnight near 0.9350. The underlying tone for USD-CHF is still pointing higher after a series of positive closes and yesterday's brief break to 0.9375, which fed a decent rally in EUR-CHF from 1.2370 to 1.2425. Rising tension in Egypt could be a source of swissy demand if the situation deteriorates further, though this is more likely to be a dollar positive when taken together with the Fed policy outlook. In recent sessions Swiss policymakers have also made a point of backing the current FX policy stance despite evidence of a Swiss economic recovery.

    [USD, CAD]
    USD-CAD eased to the 1.0305 area overnight after it topped out at 1.0370 during yesterday's European morning. The softer U.S. PPI outcome was the main driver in North American trade on Wednesday, with gold prices flat and oil a touch weaker, neither having much impact on the CAD. In Europe today, rising tension in Egypt boosted oil price and may guide CAD$ into the North American open and stops underneath 1.0300 could be vulnerable.

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