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By XE Market Analysis July 17, 2013 6:41 am
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    XE Market Analysis: North America - Jul 17, 2013

    There was a flurry of light repositioning ahead of today's testimony from Fed Chairman Bernanke, but overall recent trading ranges remained intact. GBP was the outlier after the BoE minutes unexpectedly revealed a 9-0 vote for unchanged policy, which drove Cable up from 1.5120 to 1.5246 highs. USD-JPY moved back towards the upper end of the 99.00-100.00 range on Japanese demand. The CHF held firm as markets remained defensive in light of today's major event risk. China offered supportive words on the economy, but Finance Minister Lou ruled out large scale stimulus this year.

    [EUR, USD]
    EUR-USD bottomed out just under 1.3125 and headed to 1.3165 amid EUR-JPY demand. The cross saw decent demand from 130.50 from a sovereign name, which fueled a move up through offers from 130.80 to 131.00, where stops forced a rally high to 131.35. EUR traders shrugged off rumours of a Spanish rating downgrade. The EUR was still being influenced by position adjustment. However, any further EUR buying in the early part of the U.S. session should be absorbed by decent offers into 1.3175-80.

    [USD, JPY]
    USD-JPY was boosted by good fund demand, which carried it through 99.65 resistance on the hourly chart and offers at 99.80. Interestingly, the USD-JPY move came even after there was a huge buyer of U.S. Treasuries at the Asian close. Sources said the interest weighed on U.S. 10-year yield, but yesterday's ranges still held. USD-JPY is expected to remain capped into 100.00, where huge Japanese offers are tipped ahead of buy stops at 100.10. The BoJ minutes were consistent with an unchanged policy stance. There was fresh official rhetoric from Japanese officials. Deputy finance minister Nishimura said he expects the BoJ to keep easing to reach the 2% CPI target as soon as possible, but maintained that FX levels are not a target of Japan's policies. These comments come ahead of the G20 meeting later this week.

    [GBP, USD]
    GBP surged on BoE minutes and U.K. labour market data. The MPC voted unanimously to keep both the bank rate and the current QE level unchanged. Fisher and Miles changed their vote on the need for bond purchases and Carney voted for unchanged policy. The MPC will discuss alternatives to QE in the coming month, adding that the task was to ensure stimulus and not to withdraw prematurely. The BoE said the guidance in the July statement was intended to ensure there was no premature tightening. It said the increase in market rates prior to the last meeting was unwelcome tightening. Cable jumped from 1.5120 to 1.5245, while EUR-GBP fell back from over 0.8700 to 0.8635. GBP also benefited from a 21.2k drop in the June claimant count, which was the biggest fall since June 2010.

    [USD, CHF]
    CHF maintained a bid tone as markets remained defensive ahead of Bernanke. USD-CHF headed back below 0.9400, which forced a EUR-CHF move through support at 1.2350 and it edged out lows just under 1.2340. The move lower in USD-CHF was function of repositioning by dollar longs, though activity was much lower than Tuesday. The EUR-CHF move lower came in tandem with a downturn via European equity markets. The CHF should hold up until Fed Chairman Bernanke provide more insight into U.S. policy. Since Bernanke spoke last week U.S. stocks reached record highs. It is expected that he will communicate that policy tapering is not the same as policy tightening, but market are still nervous over when policy tapering is likely to start.

    [USD, CAD]
    USD-CAD traded close to 1.0400 level following yesterday's dollar correction, which triggered a move into 1.0365. Today's BoC monetary policy decision is in focus, as well as the Bernanke testimony, making USD-CAD a difficult call. New BoC Governor Poloz could pull back a bit from the tightening bias, which will drive USD-CAD higher. However, there are wall of good offers between 1.0470 and 1.0500. On the downside, sell stops are noted below 1.0350.

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