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By XE Market Analysis June 7, 2013 6:03 am
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    XE Market Analysis: North America - Jun 07, 2013

    FX markets traded quietly in Europe after the wild moves seen after Thursday's ECB press conference, which was the catalyst for long dollar liquidation and a massive meltdown in yen-funded carry trades. The dollar drifted higher from the European open, mainly due to a lack of interest ahead of the NFP release. USD-JPY continued to trade wide ranges and drifted down from 97.25 at the London open back into the 96.00 region as specs followede movement across Nikkei futures in the absence of other leads. Japanese official rhetoric tried to calm markets overnight, but ruled out the need for FX intervention now, which left yen shorts nervous. Ahead of the N.Y. open, EUR traded around 1.3230, Cable was just in front of 1.5250 and USD-CHF traded just under 0.9300. There was no impact from European data. German trade revealed a 1.9% m/m rise in exports, while a lower than expected U.K. trade deficit suggested a 0.5% q/q rise in Q2 GDP.

    [EUR, USD]
    EUR-USD drifted lower as intra-day accounts sold into strength. Overall, EUR has held on to the majority of this week's gains. It is still trading above 1.3200, where it had settled just after the ECB press conference, before EUR took off amid stop loss activity via European bond markets. The shift in the ECB tone may temporarily support on dips, but if eurozone spreads widened signficantly then this could undermine confidence again in the region. However, short term sentiment will come from NFP data. U.S. releases this week has the market braced for some downside risk, which could initially weigh further on the dollar tone and may drive EUR towards February-25 highs of 1.3025. Note, however, given recent market action weaker U.S. data could actually boost sentiment if participants consider that the Fed will maintain the current pace of QE. Due to the potential permutations it is not surprisingly that positioning is very tight today.

    [USD, JPY]
    USD-JPY traded on a more stable footing in Europe, mostly above 96.00 after more whippy overnight action. USD-JPY traded in a range of 95.55 to 97.52 on more carry trade unwinding. Market participants are nervous over more unwinding of yen short positions after Japan Finance Minister Aso said it is not necessary to intervene now, but was watching markets closely. Movement remained volatile and USD-JPY may chop inside the Ichimoku cloud for the remainder of the session. The top of the cloud around 97.30 capped after USD-JPY fell from 97.50 down to 95.55 and then did a round trip back to 97.25 by the London open. Short term accounts remain short and sold early on to force a move back to 96.00 in thin trade, but the move may not have legs if the base of the cloud holds at 95.40. The fundamental backdrop for USD-JPY will also hinge on today's NFP data and the outlook for U.S. Treasury yields.

    [GBP, USD]
    Cable is holding firm just under 1.5600. It has edged lower since the European open, correcting some of the froth after it surged to 1.5684 highs during Thursday's dollar rout. Ahead of the dollar sell-off yesterday Cable had enjoyed a period of firmer levels after a clean sweap of positive U.K. PMI data. There is also increasing evidence that house prices are picking up, which could reinforce improving sentiment in the U.K. economy. After the BoE left policy unchanged yesterday Cable moved up from 1.5430 through 1.5450, which compared with levels close to 1.5000 just over a week ago. Cable may have scope for firmer levels, though a correction in overbought indicators could see bids into the low 1.55s come into play. Note, the long-term market is still running structural GBP short positions, but this could change dramatically if a sustained break above the 200-dma at 1.5707 was seen.

    [USD, CHF]
    EUR-CHF is trading close to 1.2300 as European markets trade quietly following the sharp moves seen since the ECB press conference on Thursday. The meltdown in carry trades left the CHF supported on dips, which limited EUR-CHF's ability to rise. Short term accounts are fading moves into 1.2320 and the 1.2350, though the downside was supported by bids around one-month lows at 1.2270-75. USD-CHF has backed up a bit since it plunged from over 0.9400 to 0.9225 yesterday and is trading just shy of 0.9300. However, there reluctance to rebuild dollar longs currently, with the near-term outlook heavily dependent on today's NFP release. Over the last week U.S. data disappointment has reduced Fed policy tapering expectations, which weighed on the dollar.

    [USD, CAD]
    USD-CAD is currently trading around 1.0250 following volatile trade on Thursday. It traded in a range of 1.0199 to 1.0355 in the aftermath of the ECB related volatility. Option backed offers were noted from 1.0350, and are said to be in place up to 1.0380. On the downside, heavy corporate bids put a floor in place from 1.0200. A significant number of orders were cleared out on Thursday, but we would expect to see short term dollar sellers into the 1.0280-00 region.

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