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By XE Market Analysis July 16, 2013 6:59 am
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    XE Market Analysis: North America - Jul 16, 2013

    The dollar was softer during the European morning as longs pared back positions ahead of Fed Chairman Bernanke's testimony on Wednesday. Price action was slow though and even though reasonable sized orders were filled there wasn't aggressive follow through action. EUR cleared 1.3100 despite the German ZEW coming in at 36.3 from 38.5 previously, which only weighed for a short time. Cable dipped into 1.5045 after U.K. CPI missed expectations by a notch at 2.9%, which is its fastest pace since April 2012 . The CHF firmed up, which reflected underlying market caution as stocks struggled. AUD was the outlier as the RBA minutes provided the catalyst for a short squeeze from 0.9100 through 0.9200 as markets deemed that it reduced the likelihood of an August rate cut.

    [EUR, USD]
    EUR-USD broke higher as short term technical indicators turned positive amid dollar repositioning. Early European accounts lifted the pair from the 1.3070 area to 1.3098 highs. A wall of strong offers from 1.3100 to 1.3120 protected buy stops higher up initially. However, even after the German ZEW reading disappointed there was only limited downside. EUR tested 1.3050 and eventually moved higher to clear 1.3100 and 1.3120. The EUR may have scope to revisit 1.3150, where good sovereign interest was noted last week, as more dollar longs are pared back into tomorrow's Bernanke testimony. Backing this view is evidence of overstretched positioning after last week's CFTC data revealed a build in dollar longs, while the latest BoA survey said dollar longs were at record levels.

    [USD, JPY]
    USD-JPY was weighed by repositioning as stocks in Europe gave back early gains and edged into negative territory. USD-JPY was unable to reclaim 100.00 and tripped light stops through 99.60 to reach intra-day lows under 99.50. Real money demand should keep the downside underpinned on dips, while large option expiries between 100.00 and 100.25 could also encourage supportive flows over the next day or two. This picture will change if key support into the 99.00 region was to give way before today's N.Y. close.

    [GBP, USD]
    Cable fell briefly on CPI data. The U.K. CPI reading came in at 2.9% y/y, which was a notch lower than the 3% forecast, though up from 2.7% previously and still the highest reading since April 2012. Cable pulled back from 1.5145 in early Europe and traded into 1.5080 ahead of the reading. However, a subsequent push back into 1.5125 met a wave of sell-interest to force a move into 1.5045 over the release. Thereafter, persistent dollar supply carried it back over the 1.5100 level, where more expiries are due today, along with exposure at 1.5125.

    [USD, CHF]
    The CHF firmed up against the EUR and the USD. Most of the action during the European morning was dominated by position reduction by dollar longs ahead of tomorrow's testimony from Bernanke. Nerves are running high, bearing in mind last week outsized moves over the FOMC minutes and the subsequent speech from Bernanke. Dollar long liquidation triggered a downturn from just ahead of 0.9500 to the 0.9425 region as sell stops gave way through 0.9450. EUR-CHF pulled back from the 1.2400-05 region to 1.2365 as short term funds were reluctant to put on leverage trades amid today's defensive tone across equity markets.

    [USD, CAD]
    USD-CAD is still supportive ahead of the 1.0400 region after it caught a decent bid in London on Monday. Short term players prefer being long of USD-CAD into the BoC policy announcement on Wednesday. There is a risk that new BoC Governor Poloz could move from a tightening bias to a more neutral stance due to the evolution of economic data. Weak manufacturing shipments today could lift USD-CAD through resistance around the 1.0450 area and would set the pair of for extended gains later this week, with an eye on 1.0500 if the BoC adjusts its stance. The caveat, of course being, that the market is beginning to get long and if BoC maintains policy status quo then a correction back towards 1.0300 is on.

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