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By XE Market Analysis June 20, 2013 10:40 am
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    XE Market Analysis: North America - Jun 20, 2013

    The European morning was dominated by Wednesday's Fed policy statement, which opened the door for policy tapering later this year if data continued to improved. Rising expectations of reduced central bank policy stimulus weighed heavily on bonds, stocks and commodities. Although the latter got added downside momentum from another poor China manufacturing data release. The net impact was very heavy dollar gains, which weighed on EUR, Cable and the commodities bloc currencies.

    [EUR, USD]
    EUR-USD extended overnight losses and broke support at 1.3200. The Fed policy statement continues to drive macro fund flows into the USD. There was also added upside from the SNB's steady policy hand, which lifted USD-CHF higher. Meanwhile, the eurozone composite PMI jumped in June to 48.9 after decent French readings, but in Germany a better than expected services PMI was offset by a weaker manufacturing outturn. With the eurozone still in recession and U.S. economic fundamentals improving the outlook for the EUR remains on the downside. The technical backdrop also shifted dramatically to the downside in the wake of the Fed, which saw EUR drop from over 1.3400 yesterday. More stops are building through June-10 lows at 1.3177 and are reportedly in large size between 1.3170 and 1.3150.

    [USD, JPY]
    USD-JPY is well supported amid the Fed policy statement. Heavy dollar demand went through from the European open, which fueled a move up from 97.00 up to the 98.30 region. Macro funds were standout buyers, which triggered a break above the base of the Ichimoku cloud at 97.67, where technical fund buy orders were noted. There were Japanese orders over 98.00 from the usual commercial sources, along with exporter hedging. However, dip buying is evident back into 97.70-80 and impetus from both a fundamental and technical perspective is with the topside. Several London deal desks are now looking for a near-term move back into the 100.00 region.

    [GBP, USD]
    Cable recovered from intra-day lows under 1.5420 and pushed back over 1.5470 amid the much stronger than expected U.K. retail sales outturn. Stop losses were triggered ahead of the release after U.K. clearer bids gave way at 1.5430. The better U.K. data is a developing theme over the last month or so. It reinforces expectations that the U.K. is recovering and the BoE will join other central banks in holding policy steady. On an intra-day basis, short term players that were playing the firmer dollar story may fade this move. However, excessive shorts may begin to cut positions on the improving fundamental backdrop and could force a squeeze through 1.5500, where buy stops are tipped.

    [USD, CHF]
    EUR-CHF dipped into 1.2300 after the SNB left policy unchanged as expected. The cross is largely unchanged intra-day. There was early EUR demand on dips from 1.2305 up to 1.2335-40. However, it is still a modest distance from post-Fed spike highs around 1.2365. The SNB policy statement noted that risks to the economy still remain high and it did not see inflation approaching the 2% price stability threshold for the entire forecast horizon, which backs expectations that the SNB will continue with its easy policy bias. USD-CHF could drive EUR-CHF price action ahead. The dollar pairing is trading around 0.9320, where it reached in the wake of the Fed policy outcome and is on course to challenge resistance from 0.9375 to 0.9400.

    [USD, CAD]
    USD-CAD was sharply higher in Europe. Heavy dollar buying went through and the commodity bloc currencies experienced added selling pressure amid very steep losses across the commodity market due to expectations of reduced central bank policy stimulus and weak China manufacturing data. USD-CAD triggered technical fund buy stops over 1.0325 after it picked from 1.0300 at the London open and this fueled a run up to 1.0350. Thereafter dip buying was noted from 1.0220-30 and it move steadily higher filling in a series of good orders between 1.0350 to 1.0380. Late May highs just over 1.0400 are a potential near-term target, though good offers are tipped into 1.0400.

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