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By XE Market Analysis July 26, 2013 6:49 am
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    XE Market Analysis: North America - Jul 26, 2013

    The dollar traded on the heavy side throughout the European morning. It faded lower on Thursday and got added traction into the N.Y. close amid the latest piece from WSJ's Hilsenrath. He suggested that the Fed will continue with the current rate of bond buying and could refresh its forward guidance policy message next week. His article did not cite any specific sources, but suggested that the employment rate or the inflation threshold could be looked at. The FX market responded by lifting EUR, GBP and AUD, though equity markets moves were more restrained as the earnings season left a mixed picture.

    [EUR, USD]
    EUR-USD threatened 1.3300 and reached a 1.3297 top and then faded. Offers are heavy from 1.3300 related to outstanding options and real money offers. The latest Hilsenrath article weighed on the dollar tone, but the U.S. is still more advanced in its policy cycle than the Eurozone and in the coming sessions hedging may increase. Next week, central bank policy meetings from the U.S. and the ECB are in focus. Note, the ECB look less likely to ease after a pick up in Eurozone data, which has seen a re-pricing of the rate outlook via money markets and a supportive lead for the EUR, backed up by positive technical indicators. However, the ECB is still mulling measures to benefit SMEs and Draghi should reiterate last month's forward guidance.

    [USD, JPY]
    USD-JPY found a modicum of support as Japanese names defend the downside into 98.50. Stops gave way during the European morning, but there was no follow through in quiet trade. USD-JPY broke lower overnight amid large flows from U.S. leverage funds. After 99.00 gave way there was follow through interest from momentum funds and more system fund stops are tipped lower down. A move through 98.50 should meet better bids at 98.00-20. The move back in JPY was exacerbated by the downturn in the Nikkei. Source said that Asian investors are reducing exposure to both the cash and the futures market and a deeper retracement could be underway. The upturn in CPI was a welcome development for the BoJ, but it also reduces expectations of BoJ adding to the current asset purchase program.

    [GBP, USD]
    Cable maintained a bid tone throughout. Since it broke above 1.5400 dip buying has prevailed, leaving it just a short distance from yesterday's spike highs at 1.5435. Real money accounts and corporates piled into Cable yesterday after post-U.K. GDP profit taking forced it under 1.5300. The move extended to 1.5262 on dollar buying, but sentiment turned in N.Y. and was exacerbated by more conjecture on Fed policy. The sterling backdrop should remain supportive based on improving fundamentals and a bullish technical backdrop. Selling pressure should increase though from 1.5450 as option exposure adds to natural order book flow. The BoE are due to meet next week and are expected to flesh out details on forward policy guidance.

    [USD, CHF]
    CHF traded on a firmer footing as the European majors consolidated overnight gains against the USD. The dollar pairing initially experienced a congestion of two-way flows either side of 0.9300, but then edged out 0.9270 lows as European stocks failed to sustain opening gains. The move out of risky positions saw EUR-CHF ebb to 1.2322 lows after it posted a weak close under 1.2350 on Thursday. This indicates the potential for further losses, though USD-CHF is trading around levels where both corporate and real money demand could provide a modicum of support.

    [USD, CAD]
    USD-CAD headed to 1.0256 lows on broad based dollar selling pressure. It posted a modest recovery back to 1.0290 in Asia. Equity markets in Europe have started on a positive footing and could also help CAD$ and selling pressure via USD-CAD should build ahead of 1.0300, with the underlying trend pointing to a test of good support at 1.0250.

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