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By XE Market Analysis July 1, 2013 6:47 am
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    XE Market Analysis: North America - Jul 01, 2013

    Risk appetite was stable in Europe as manufacturing PMI data pointed to stabilisation in the eurozone and continued expansion in the U.K. The numbers followed a strong Japanese Tankan release, which backed the Abenomics growth drive. China manufacturing PMI overnight slowed to 50.1, but it did meet expectations and there was optimism after money market rates came down again. EUR edged up through 1.3050, though follow through was limited ahead of key event risks later this week. GBP recovered from an early dip after positive U.K. data, while USD-JPY move over 99.70.

    [EUR, USD]
    EUR-USD posted modest gains through 1.3050 following eurozone PMI data. The headline rate came in slightly higher after encouraging national releases. Spain and Italy came in higher than expected, while the French outturn was marginally higher compared with the downward revision in Germany. EUR firmed up from 1.3020, but is not running away on the topside due to offers from 1.3060 to 1.3080 and across the 1.3100 area. This week's event risks could keep ranges on the tight side, with the ECB policy outcome on Thursday and Friday's NFP data.

    [USD, JPY]
    USD-JPY added to overnight gains to trade just over 99.70. USD-JPY was boosted after a strong Tankan report put a floor under stocks and yen-funded carry trades. The data backs Japan's aggressive policy stance and supports expectation that the government and BoJ will continue on the current policy path. The pick up in USD-JPY brings the psychological 100 level back into focus and is now a significant resistance level. On the daily chart, 99.93 represents a 61.8% fibonacci retracement level from the 103.74 to 93.73 downleg. Large outstanding options are also noted from 100.00 to 100.50 from knockouts that were written for JPY call hedging. However, there has been a notable pick up in topside hedging since late last week.

    [GBP, USD]
    GBP jumped on a better U.K. manufacturing PMI reading and a pick up in consumer credit. EUR-GBP firmed up ahead of the release from 0.8555 and matched Friday's 0.8590 top as eurozone PMI came in a notch higher than expected. However, U.K. data forced it back to European opening levels and enabled Cable to overcome an earlier dip into 1.5185 to trade at 1.5245. GBP should continue to meet selling pressure on upticks as last week's break lower maintains the bias on lower levels. The focus for U.K. markets will be on the BoE as Carney takes charge of his first MPC meeting later this week, though no change is expected.

    [USD, CHF]
    EUR-CHF posted modest gains, trading from 1.2300 just over 1.2335. The EUR tone was supported by evidence that eurozone manufacturing is stabilising. This provided a modicum of support for stocks and weighed on bonds. Swiss manufacturing PMI came in at 51.9 from 52.2 in May, though CHF movement since the European open is directly influenced by EUR moves. USD-CHF is still trading close to 0.9450 versus last week's highs around 0.9490. The Fed policy outlook has fueled good long position building in USD-CHF of late despite last week's attempt by several Fed official to allay fears of near-term policy tapering. The bias for USD-CHF is still on a push through resistance at 0.9500 to 0.9520.

    [USD, CAD]
    USD-CAD consolidated recent gains in Europe. It traded between 1.0495 amd 1.0530 since the Asia open. There was slight pick up in CAD$ in line with a rebound in AUD in Asia, which fueled a move down from 1.0530 through 1.0500. Follow through was limited in Europe due to good dollar bids and it headed back to overnight highs around 1.0530. However, there was a bit of reluctance to press the topside too aggressively amid very strong offers ahead of 1.0550, where good supply emerged last Friday.

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