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By XE Market Analysis July 10, 2013 6:47 am
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    XE Market Analysis: North America - Jul 10, 2013

    Risk aversion was noted in Europe after weak China trade data impacted sentiment. Exports dropped 3.7% y/y and imports fell 0.7% y/y. Asian stocks only held up because market participants believe Beijing could be forced to give up its focus on inflation fighting and bank lending in order to support the economy. In Europe, sentiment was negative. Yesterday's S&P downgrade of Italy still influenced. However, the market turned its attention away from yesterday's comments from ECB's Asmussen and focused on dollar repositioning ahead of the FOMC and today's speech from Bernanke. A dollar sell-off was sparked by Japanese liquidation in USD-JPY and a EUR-USD buy order by a large Asian reserve manager.

    [EUR, USD]
    EUR-USD maintained a heavy tone under 1.2800 after yesterday's sharp sell-off, which came on remarks from ECB's Asmussen, who said that the ECB's forward guidance extends beyond 12-months. S&P's downgrade of Italy also compounded the move and forced a low of 1.2755 in N.Y., but in Asia it has met natural buyers. Commercial flows were evident on dips, while it's likely that options will also feature ahead of April-4 lows of 1.2745. The late dollar sell-off in Asia helped it back towards 1.2800, though we anticipate good selling pressure on upticks.

    [USD, JPY]
    USD-JPY triggered another round of stops below 100.00. The pair has struggled to since late Asia, where a quick move lower in the Nikkei tipped the pair through good support at 100.75. It extended to 100.30, where Japanese buyers were noted, but small moves back towards 100.60-70 were sold into as dollar longs cover positions ahead of today's FOMC minutes, a speech from Bernanke and tomorrow's BoJ policy outcome. Stock markets remain under pressure in Europe, with the S&P downgrade of Italy weighing. China growth concerns are also a worry as Beijing grapples with a slowdown in exports and an acceleration in inflation. Bias is on lower levels, although some flow related to today expiries at 100.00 and 100.50 could go through, along with bargain hunting on dips.

    [GBP, USD]
    GBP posted a modest correction and then consolidated. Cable headed back through 1.4900 in Asia and extended through 1.4920 during the European time zone. Buyers of Cable were noted around 1.4850, while an extended downturn in EUR-GBP to 0.8575 reinforced the upturn. EUR-GBP looked overbought yesterday around 0.8670 based on macro fundamentals. EUR-GBP options at 0.8600 have exerted an influence, while Cable is beginning to edge away from rally highs on supply from both a Middle Eastern account and an Asian name. Since the Cable break lower position traders will fade rallies towards 1.4940-50, while 1.5000 will provide good resistance in the near-term.

    [USD, CHF]
    USD-CHF was pressured by Swiss name selling from the European open, which left it just under 0.9700 from 0.9730 and a modest distance from yesterday 0.9751 highs. The dollar experienced a modest correction in late Asia and this carried into the European open. EUR-CHF is stable just under 1.2420 have found buyers in front of 1.2400. The underlying trend is still intact, although yesterday's downturn from 1.2465 and more dovish rhetoric from ECB officials may limit the upside. USD-CHF should also begin to find buyers towards 0.9660-70.

    [USD, CAD]
    USD-CAD edged into the 1.0505-10 area amid light dollar selling and a supportive risk backdrop. However, follow through may be limited after the weak China trade data, which will raise concerns over the global growth outlook. This was one of the risks cited by the IMF in yesterday's report. Solid bid interest is seen into 1.0500, though order congestion remains from 1.0550 and above, which could keep ranges fairly narrow over the course of the session.

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