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By XE Market Analysis July 5, 2013 6:35 am
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    XE Market Analysis: North America - Jul 05, 2013

    The impetus for FX markets still came from yesterday's BoE and ECB rate decisions. Both banks left policy unchanged, but decided to move to forward policy guidance. EUR and GBP added to Thursday's losses, moving through support at 1.2880 and 1.5000, respectively. The decision by both the ECB and BoE may take on even greater relevance if the U.S. NFP reading comes in on the firmer side today. The debate over Fed policy has raged for weeks and even though Fed officials have tried to push back against market expectations yields remain on the rise and stocks are off late May highs. USD-JPY traded a tight range close to 100.00 as the dollar bid was offset by JPY-cross weakness.

    [EUR, USD]
    EUR-USD extended post-ECB losses and moved through the 1.2875 region as stops gave way through 1.2880. Macro funds have been steady sellers since the European open and forced out bids from European names. Progress on the downside could slow into 1.2850-60, where good support is noted ahead of another layer of sell stops. Option related flows could also pick up into the 1.2800 area amid large outstanding barriers. The EUR should remain heavy after yesterday's ECB statement and ahead of the U.S. NFP release, where more improvement is expected in U.S. jobs. On the data front, German manufacturing order unexpectedly dropped 1.3% m/m.

    [USD, JPY]
    USD-JPY consolidated overnight gains. It met good offers into 100.50 in Asia and headed back through 100.00 since the European open. A downturn in EUR and GBP guided USD-JPY via the crosses, though follow through under 100.00 was limited by option maturities and an underlying dollar bid tone. The USD-JPY uptrend stalled on Tuesday and Wednesday as large offers held ahead of 100.00. An inside day on Thursday in holiday thin trade and limited upside overnight could flag a potential correction. Stops are building on the downside from 99.50 to 99.20 and could come back into play if the top of the Ichimoku cloud around 101.20 holds after the NFP release.

    [GBP, USD]
    Cable broke 1.5000 for the first time since March-14 as market participants continue to re-price the interest rate outlook after yesterday's dovish BoE policy statement. A corporate account was reportedly an aggressive seller under 1.5020 after real money were active from 1.5050 at the London open. Demand for GBP puts is heavy amid expectations of extended sterling losses. Barclays said Cable could trade as low as 1.4100 over the coming year.

    [USD, CHF]
    EUR-CHF edged out highs through 1.2360 over the Swiss CPI release. It came in firmer than expected, but still remained in negative territory overall. The CHF has maintained softer levels after it fell on Thursday in the wake of dovish policy outcomes from the ECB and BoE. USD-CHF is trading close to 0.9600 as the dollar added to Thursday's gains after the European open, with EUR moving through 1.2875 and Cable breaking through 1.5000 barriers. EUR-CHF is largely unchanged due to contrasting dollar inflows. The cross has met good sell-interest in recent sessions from 1.2370 to the 1.2380 region and these should cap in the near-term.

    [USD, CAD]
    USD-CAD is supportive on a 1.0500 handle, leaving it inside the familiar trading range. On Thursday, CAD$ rallied in line with the other commodity bloc currencies as risk appetite was boosted by dovish policy rhetoric from the BoE and ECB. However, the underlying dollar trend encouraged demand from model funds and USD-CAD rebounded after bottoming out ahead of good bids from 1.0470. It has since travelled back towards the 1.0550 region, where in recent sessions it has met fund offers. Note, large outstanding option barriers remain from 1.0600.

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