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By XE Market Analysis August 19, 2013 6:40 am
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    XE Market Analysis: North America - Aug 19, 2013

    Most of the activity of any significance came late on in the European morning after a very quiet start. Summer trading conditions left larger players out of the market initially, leaving the USD mildly supported after last week's bout of repositioning ran its course. As the morning progressed GBP benefited on persistent demand on dips and an order for a fund name lifted Cable to trend highs over 1.5665 and left EUR-GBP near last week's six week lows just ahead of 0.8500. EUR jumped to 1.3375 as the Bundesbank said ECB's guidance does not rule out a rate hike if inflation risks emerge. USD-JPY benefited from EUR and GBP gains via the JPY crosses, along with large option strikes congestion, which carried it back to 98.00. Overnight, Japan trade data revealed a much larger than expected trade deficit of Y1.02 tln, but the breakdown was encouraging.

    [EUR, USD]
    EUR-USD broke to session highs on Bundesbank policy talk. EUR jumped from 1.3335 to 1.3375 after Bundesbank said ECB policy guidance does not rule out a rate hike if inflation risks emerge. Follow through demand could go through in early N.Y. as interbank key off positive short term momentum studies with very little on the U.S. calendar today after an empty European data calendar. Note, long term resistance from 1.3400-20 has tended to work against short term flows in recent sessions, though thin trade could exacerbate any squeeze higher.

    [USD, JPY]
    USD-JPY headed higher, buoyed by positive technical studies and the JPY crosses. Flows were light overnight as most accounts returned from the week-long Obon holidays when a number of corporates run skeleton operations. There was no appetite to take on big positions ahead of the Fed minutes and the Jackson Hole summit later this week, where BoJ Kuroda will be in attendance. JPY was weighed in Asia by the wider than expected trade deficit, which came in at Y1.02 tln. The breakdown was quite encouraging. Exports came in at 12.2% y/y, though a bit weaker than expectations, but imports surged 19.6% and were much better than expected. The USD-JPY tone was skewed in favour of higher levels after several failures to break lower last week. On an intra-day basis dollar buyers may also pick up due to option expiries at 97.50, 97.75 and 98.00. Of note, demand for EUR and GBP was a supportive lead as it benefited EUR-JPY and GBP-JPY on dips.

    [GBP, USD]
    Cable headed higher. U.K. clearer demand triggered buy stops through 1.5660 and it extended just over 1.5665. The order was reportedly fund related, though option flow has been supportive since early on in the European session when 1.5600 held. Longs eye a move on the 1.5700 level, where option barriers should result in defensive offers. There were any fresh developments to draw long-term accounts into the market today. However, the CBI's upward revision in 2013 and 2014 growth forecasts offer more positive news flow.

    [USD, CHF]
    EUR-CHF consolidated following the correction from over 1.2400 late last week. Deleveraging went through as stocks faltered due to concerns over rising bond yields amid recovery expectations in Europe and risk of Fed policy tapering. Two consecutive failures over 1.2425 has seen European interbank lower offers to 1.2400, though USD-CHF is still likely to be the strong source of direction. The dollar pairing has scope for further losses following the correction from 0.9395 to Friday's 0.9215 lows. Short term funds have left offers at 0.9300, while dollar longs that missed out on the downturn have lowered offers to 0.9330-50.

    [USD, CAD]
    USD-CAD is stable ahead of 1.0300. Dollar buying has picked up since it steadied just under 1.0300 late last week. Equity markets have traded defensively on concerns of rising yields and the impact from Fed policy tapering. This has weighed on CAD$, while there was also a couple of notable Canadian data misses of late, which should keep USD-CAD bias with higher levels. An early move up to 1.0340 ran into natural supply from interbank names, leaving it just ahead of 1.0300. Traders also note option strikes at 1.0350 and 1.0400 today.

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