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By XE Market Analysis June 5, 2013 6:59 am
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    XE Market Analysis: North America - Jun 05, 2013

    Consolidation set in ahead of central bank policy meetings and Friday's NFP data. U.S. stocks closed at softer levels in subdued trade on Tuesday, which set up a defensive tone in Asia and Europe, but overall there was no appetite to force a break of range. USD-JPY dipped below 100.00 overnight as intra-day accounts reacted with disappointment to PM Abe's growth strategy, which will be finalised over the next week. The measures will not have an immediate impact on the market and there was no mention of changes to the national pension fund, which had been widely anticipated. Cable benefited from another positive U.K. data reading as service sector PMI rose to its best levels since March 2012. EUR tried to move higher, but could not overcome offers into 1.3100. It largely ignored eurozone releases, which included a dip in services sector PMI and an unchanged composite reading. Retail sales were weaker than expected at -0.5% m/m and Q1 GDP was confirmed at 0.2% q/q.

    [EUR, USD]
    EUR-USD maintained a holding pattern, with very little movement since the European open. Eurozone PMI data did not offer much in the way of directional bias for markets coming so close to tomorrow's ECB policy outcome. In the last few sessions a reduction by EUR shorts underpinned, but gains were limited by sovereigns yesterday and range players have left orders from 1.3100 to 1.3130 today. The macro picture is still more favourable for the USD rather than the EUR, but there are few that are willing to risk fresh positions ahead of this week's major event risks. Today's U.S. ADP employment could fuel some dollar movement ahead of Friday's NFP report. The market has pulled back a bit from Fed policy tapering expectations, but both the USD and Treasury yields maintain a higher trading base.

    [USD, JPY]
    USD-JPY found a base close to 99.40 and edged back towards the 100.00 region. Follow through demand is being stymied by Japanese offers and short term accounts playing the range in relatively slow trade. In Asia, JPY rallied amid disappointment that the speech from PM Abe did not outline changes that would enable the national public fund to change the way it operates in order to seek higher returns. However, according to wire reports this something that the government is seeking expert advice on. There is speculation that changes could be announced very shortly and will see increases in overseas investment and holdings of Japanese equities. Currrently, 64% of assets are held in JGBs, 11% in Japanese stocks, 12% held in foreign stocks and 9% in foreign bonds.

    [GBP, USD]
    Cable headed to session highs close to 1.5370 after U.K. services sector PMI beat expectations to print the highest reading since March 2012 at 54.9, which added to recent evidence that the U.K. economy is picking up pace. The upturn in GBP was dampened to a degree by EUR-GBP, which traded around levels where corporate demand was noted and it recovered 0.8495 to 0.8510. Cable was just a short distance from Monday's 1.5376 peak and highs from May-13 at 1.5385, which provided natural supply ahead of widely tipped option positioning across the 1.5400 level.

    [USD, CHF]
    EUR-CHF is consolidating under 1.2400 after the CHF strengthened amid a heavier tone across global equity markets. The reduction in risk reflected general repositioning ahead of tomorrow's central bank policy meetings and Friday's NFP data. The downturn in EUR-CHF tracked a USD-CHF move back below 0.9500 on Tuesday, though both the EUR and USD remain inside the recent trading range. In recent sessions, EUR-CHF was underpinned by local names towards 1.2350 and below, which are likely to continue intra-day, while offers have picked up from 1.2430 to 1.2470. Meanwhile, a further reduction by dollar longs could send USD-CHF back towards recent pullback lows close to 0.9400, which marked the bottom of the recent range on Monday.

    [USD, CAD]
    USD-CAD headed towards 1.0370 overnight as the downturn in equity markets weighed on CAD$. Activity via USD-CAD is light and interest remains on the thin side. The move back over 1.0300 on Tuesday points to more range trading conditions. In the absence of larger leads movement via equity markets and commodities will drive price action. Buyers remain from 1.0320 to just under 1.0300 and sellers increase in size towards 1.0400.

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