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By XE Market Analysis July 4, 2013 6:13 am
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    XE Market Analysis: North America - Jul 04, 2013

    FX markets are in a holding pattern ahead of today's policy outcome from the BoE and ECB. Both central banks are expected to keep policy unchanged, but the ECB is likely to be more of a market mover amid the accompanying press conference from Draghi. He is likely to reiterate the ECB's accommodative policy stance, which may be timely given the rising eurozone risks this week. New BoE Governor Carney is expected to bring in explicit forward guidance to reduce uncertainty. GBP has been under a sustained bout of selling pressure of late in spite another set of encouraging data releases this week, but bounced back on Wednesday after services sector PMI strength. Meanwhile, USD-JPY's uptrend was damaged by yesterday's sharp drop and is now running into selling pressure on upticks. The CHF edged lower as stock markets recovered some ground overnight.

    [EUR, USD]
    EUR-USD started the session close to the 1.3000 region and headed into 1.3020 in early Asia. However, follow through was limited by EUR-JPY supply and a general lack of interest in low volumes ahead of today's ECB outcome. EUR drifted back towards 1.2980 after the London open, but follow through was contained and it entered the ECB decision unchanged around 1.3000. Comments from ECB's Draghi are going to be of interest in the respect of potential policy guidance and in light of the rise in eurozone risks this week. Draghi should maintain dovish rhetoric and may offer some calming words on the recent rise in yields.

    [USD, JPY]
    USD-JPY experienced limited upside. Yesterday's break lower undermined the uptrend, which fuelled supply on upticks over 100.00 overnight and since Europe opened offers capped from 99.90. Weekly Japanese flow data also reduced interest for yen-funded carry trades after it revealed that foreign investors were net sellers of foreign bonds for the seventh consecutive week. There are Japanese importer bids supporting the downside from 99.50 to 99.25, but stops are building below. Option expiries that could attract in the absence of U.S. traders today include 99.50, 99.60 and 99.75 open interest.

    [GBP, USD]
    GBP corrected from yesterday's highs as consolidation set in ahead of the BoE policy outcome. No change is expected, but new governor Carney is expected to bring in forward policy guidance at some point. Carney will want to ensure that there is no uncertainty over the policy outlook in the wake of recent U.K. data strength. Cable is currently trading close to the 1.5250 level after sell-interest was noted into 1.5260-70 from fund names and an Asian sovereign. The downside is being underpinned by support at 1.5220 to 1.5200 from short term accounts. Meanwhile, EUR-GBP is supported around 0.8520 after large corporate bids put a floor in place from 0.8480 on Wednesday.

    [USD, CHF]
    CHF was easier as risk appetite improved overnight. EUR-CHF traded out of 1.2315 back over 1.2330, while USD-CHF consolidated just under the 0.9500 region. Activity in Europe was very low. Large flows were minimal as market participants remained on the sidelines ahead of the ECB policy outcome and tomorrow's U.S. NFP data. Today's U.S. Independence Day holiday also significantly reduced volumes and there was no ambition to force a break of range. EUR-CHF orders are noted between 1.2300 and 1.2350 initially, though large bids are tipped from 1.2280 and heavy sell-interest that capped from 1.2370-80 earlier this week are still in place ahead of the 1.2400 pivot.

    [USD, CAD]
    USD-CAD was rangebound overnight, moving inside about a 1.0500-30 band for the most part after it was unable to force a break in either direction. On Wednesday, it continued to move selling pressure on upticks, leaving it off highs from earlier in the week. Offers are still lined up from 1.0580 to 1.0600 barriers, with large stops seen in place over the figure. Positions were kept reined in front of the ECB meeting tomorrow, and the twin U.S./Canada employment reports on Friday.

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