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By XE Market Analysis August 16, 2013 6:34 am
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    XE Market Analysis: North America - Aug 16, 2013

    Markets remained defensive into the weekend after yesterday's plunge in European and U.S. markets amid a surge in bond yields. This kept JPY and CHF underpinned, but USD consolidated losses following Thursday's heavy long liquidation. China was the focus of intra-day chatter after the SSEC surged more than 5% in Asia and then gave back all of its gains to end 0.64% lower. The upturn came on a combination of PBoC policy speculation, talk of contracts in the futures market expiring and a potential mini-stimulus announcement, which did not materialise. The stock moves were reportedly due to a $7 bln mishit by a broker and led to an investigation by the authorities. European data revealed a rebound in exports and balance of payments data showed investment inflows despite weakness in growth.

    [EUR, USD]
    EUR-USD edged back over 1.3350 after an early move into 1.3325. Movement higher up is being stymied by large outstanding option strikes at 1.3350 and good offers over 1.3360 from sovereign names. Position traders are still looking to sell into strength while strong resistance at 1.3400 to 1.3420 holds. Buyers on the downside have been very short term in nature and are tending to follow short term technical studies which turned higher on yesterday's key day reversal. However, market liquidity was very poor and fundamentals are still working against short term flows.

    [USD, JPY]
    USD-JPY is hemmed in by option expiries following Thursday's sharp reversal from 98.65 to 97.05. It met very strong bids ahead of 97.00 overnight and posted a 97.76 rally high by late Asia. An upswing on the SSEC contributed to yen selling, though when this gave back all of its gains USD-JPY drifted back to the 97.30 region. Option expiries today include $2.5 bln at 97.10, $1.85 bln at 97.50, $3.75 bln at 98.10 and $1.7 bln at 99.00. Option sources said yesterday that USD-JPY gains would be capped by gamma hedging and more narrow movement should continue into the N.Y. open.

    [GBP, USD]
    Cable is trading near the top of the range. Dip buying went through from the 1.5620 area after the London open, leaving it just a short distance from yesterday's 1.5652 top. The underlying tone is very bullish since the run of strong U.K. data boosted Cable above the 200-dma at 1.5525 on Wednesday and recorded a series of positive closes. The move higher in GBP came in tandem with reports of real money demand as rates move higher despite the BoE's formal policy guidance. Some bank research desks think BoE Governor Carney will try to push back against market expectations if this trend continues, thought recent BoE minutes revealed that some member though the move higher in rates was justified.

    [USD, CHF]
    EUR-CHF met selling pressure on upticks. Failure to sustain the move through 1.2425 for two consecutive sessions flagged a potential turning point for the cross, while the subsequent downturn in stocks also triggered an unwinding of speculative positions. EUR-CHF traded back towards 1.2350 since the European open, though it is elevated above yesterday's 1.2337 lows. Buyers are tipped into 1.2330, while offers lie ahead of 1.2400 now. USD-CHF has stabilised since it crashed to 0.9248 lows on Thursday versus a 0.9397 top. However, it has not traded higher than 0.9288 since the European open and in general short term accounts are nervous of running dollar longs after yesterday's plunge in thin trade.

    [USD, CAD]
    USD-CAD steadied after standing bids at 1.0300 gave way in Asia and it hit 1.0294 lows. Once light stops were filled it headed back through 1.0330 in quiet European trade. Bias currently is skewed to another run towards 1.0370 offers as stocks struggle following yesterday's sharp losses. Bids are also heavy under 1.0300 and into 1.0280, which is offering encouragement for range players that are building up longs again after the pullback from 1.0365 on Thursday.

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