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By XE Market Analysis August 29, 2013 6:23 am
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    XE Market Analysis: North America - Aug 29, 2013

    Sentiment improved in Asia and Europe after Wall Street closed in positive territory. There were no fresh developments on Syria, which enabled intra-day accounts to focus on pre-month-end window dressing. U.N. inspectors are expected to remain in Syria until the weekend and U.S. Defence Secretary Hagel said the U.S. would only act with international collaboration, which reduced the immediate risk of military action. The dollar made up ground on good Asian sovereign demand and flows related to month-end. EUR fell to the 1.3250 region, Cable traded back into 1.5500 and AUD-USD fell back from 0.8980 to 0.8925. In Europe, there was an unexpected rise in German jobless numbers and German state CPI data came in on the weaker side, which supports expectations for ECB's easy policy stance. In Italy, markets outperformed after Italian PM Letta managed to find a compromise with other coalition parties on the controversial property tax.

    [EUR, USD]
    EUR-USD moved into the 1.3250 area on dollar strength, which was reportedly due to month-end flow and Asian sovereign activity. Adding weight on the EUR tone was an unexpected rise in Germany unemployment, while state CPI releases from Germany have so far have been on the lower side of expectations. Meanwhile, ECB's Nowotny is the latest official to reiterate that ECB guidance is dependent on inflation expectations and said ECB would act if inflation accelerated, suggesting that the ECB are likely to maintain policy status quo next week. There are more EUR sell stops anticipated under 1.3250, but a series of support levels at 1.3245 to 1.3235 should add support, along with outstanding bids at 1.3200-10.

    [USD, JPY]
    USD-JPY traded into 98.25 as dollar demand accelerated from the European open. Asian central bank demand was prevalent against JPY, EUR and a variety of G10 currencies, related to reserve management flows and month-end activity. Japanese exporter offers were filled in from 98.00-10 and stops added momentum through 98.20. The pick up in USD-JPY has seen London interbank names collect bids from Asia into the 97.80 region and around 97.50, where option expiries are due to roll-off, along with modest size interest at 98.00 and 98.50. The dollar has firmed up despite a more stable equity market tone overnight and in early Europe.

    [GBP, USD]
    Cable traded into the 1.5500 region in early Europe as the dollar picked up. However, follow through selling is being stymied by a sovereign name and supportive interest as market rates are still elevated despite yesterday's speech from BoE Governor Carney. The lack of upside in Cable of late is a potential negative, though yesterday's rebound out of 1.5430 and close above 1.5500 and the 200-dma around 1.5510 is providing a modicum of support. There is also unlikely to be wholesale liquidation of sterling longs while U.K. fundamentals are improving. The BoE's easy policy stance and evidence of a sustained recovery has made the U.K. a good bet for long-term money managers.

    [USD, CHF]
    CHF is mixed in Europe. EUR-CHF has been sidelined due to the contrasting flows that went through the USD and European majors. EUR-USD's move into 1.3250 was offset by USD-CHF gains to 0.9285, which was reportedly month-end related. Yesterday's EUR-CHF move into the 200-dma near 1.2275 met a very strong bid by more than one local name. This has provided a near-term base and encouraged light long position building. However, the situation in Syria is still developing and the recent failures above 1.2350 is still a negative influence in the very near-term. USD-CHF may have scope for higher levels, though in the last two weeks of trade it has struggled to clear good offers from 0.9300.

    [USD, CAD]
    USD-CAD found a temporary base near 1.0470 and edged back towards 1.0500 on underlying dollar firmness. Firmer oil prices have been supportive of CAD$ in recent sessions. However, prices have eased off and this weighed on CAD overnight, leaving the broader USD tone to reassert itself. Month end flows could dominate and this may enable USD-CAD to sustain movement on a 1.05 handle. Longer term players are still positioning for an eventual test of trend highs near 1.0610 from early July. However, ahead of those levels there is order congestion from 1.0540-50 and 1.0570-80, as well as 1.0600 barriers.

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