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By XE Market Analysis July 19, 2013 7:15 am
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    XE Market Analysis: North America - Jul 19, 2013

    It was another quiet session for FX. A USD-JPY drop in Asia from 100.87 to 99.80 was the catalyst for early dollar selling, but follow through was very limited again and it backed up towards 100.50. Market participants opined that the pending Upper House elections in Japan on the weekend are more likely to benefit the leading coalition, which will mean more reforms and a positive for stocks and USD-JPY. EUR-USD ran into commercial flows ahead of 1.3150 and a EUR-GBP macro fund sell order forced it back into 1.3100. The political backdrop in Portugal is still uncertain, but it was positive news that the government survived a confidence vote on Thursday. GBP continued to outperform, which has been the case since the BoE minutes earlier in the week and left Cable supported around 1.5250.

    [EUR, USD]
    EUR-USD headed back to 1.3100. Asian commercial flows capped from 1.3150 in Asia ahead of large spec account offers from 1.3170 to 1.3200. A EUR-GBP sell-order contributed to the downturn, according to sources, with one standout European name selling on behalf of a macro fund. External leads are also limited, with stocks a bit weaker following profit taking activity that went through in Asia and ahead of earnings results later today. The G20 gets underway in Moscow and according to the Russian finance minister it will discuss Fed tapering, while China is also likely to be on the agenda after the liquidity crunch in June. Overall, another uneventful session for FX. Option strikes area heavily congested again around 1.3100 and prices should move back and forth around this level in early N.Y. trade.

    [USD, JPY]
    USD-JPY steadied over 100.00 following the overnight drop from 100.87 highs to 99.80. The fallout was due to repositioning ahead of Sunday's Upper House elections, which triggered heavy liquidation via Nikkei futures and resulted in a 2.7% plunge in the cash market from high-to-low to close 1.48% lower. Volumes in Europe are very low and options could impact into the weekend after most short term positions were flushed out. Strikes are noted at 100.00 and 100.50. The downside in USD-JPY was supported overnight by weekly MoF flow data, which revealed that Japanese investors were heavy buyers of foreign bonds, but the Japan Life Insurance Lobby Head did not think that lifers are considering increasing holdings by large amounts.

    [GBP, USD]
    Cable edged up to 1.5260 amid option related demand linked to today's maturities at 1.5250-60 and 1.5300. There was limited reaction to U.K. public financing data, which resulted in a wider budget gap. The upturn in Cable was compounded by EUR-GBP losses. The cross pulled back from 0.8630 and moved through 0.8600 as the EUR was pressured by commercial flows, mostly from Asian related interest. GBP has generally held up since the BoE minutes voted unanimously for an unchanged policy stance ahead of August, where more details will be revealed on forward policy guidance.

    [USD, CHF]
    CHF consolidates at easier levels. EUR-CHF is trading close to the 1.2375 area as EUR is being supported by light dollar outflows since the Asia open. USD-CHF eased off the 0.9450 area and is trading close to the 0.9420 area. However, it is still expected to meet persistent demand on dips as the rebound out of the 200-dma on Wednesday is a positive lead. We think direct flows via the cross will still struggle due to the price chop via Eurozone bond markets. The Portugal government is continuing its discussions with the other main parties on the salvation deal, which has a self-imposed deadline for Sunday. The G20 are also expected to meet, though we do not think it will move markets. Fed and PBoC policy may be on the agenda, while Japan have repeatedly dodged the currency issue since it embarked on aggressive stimulus.

    [USD, CAD]
    USD-CAD spent time under 1.0400 overnight after it was unable to sustain higher levels again on Thursday. Offers into the 1.0440 region continue to put a cap on gains and sellers have lowered some of their interest to 1.0400-20 today amid rising risk that support towards 1.0350 could be pressured into the weekend. The dollar is on the back foot on light repositioning, though with stocks putting in a more mixed performance this has the potential to weigh on CAD$ to a degree. Note also that the dovish BoC stance will likely keep CAD gains to a minimum for now.

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