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By XE Market Analysis June 24, 2013 6:51 am
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    XE Market Analysis: North America - Jun 24, 2013

    Fed policy expectations and China liquidity risk continued to influence broader market sentiment. The dollar bid steepened in early Europe as Treasury yields reached year-to-date highs in Asia and added pressure on European government bonds. Stock markets in Europe fell sharply after China's SSEC closed 5.5% lower after the PBoC said banking system liquidity was at reasonable levels, suggesting that it would not come to the aid of banks, which were pummelled in Asia. The USD edged higher and was followed closely by gains in JPY and CHF in the European time zone. EUR got a brief lift on a firm German Ifo release, but was tied close to 1.3100 overall, while Cable remained under pressure around 1.5350. Elsewhere, AUD hit trend lows at 0.9148 and then rebounded to 0.9200 on short covering, while USD-CAD hit 1.0539 trend highs.

    [EUR, USD]
    EUR-USD is tied around 1.3100, but has tested both sides of the market since the open. EUR headed to 1.3080 in early trade amid underlying dollar strength. However, macro fund demand was evident in anticipation of an improvement in the German Ifo release, which proved to be the case after it met expectations at 105.9. The early fund demand may have dampened the immediate market reaction as EUR only managed a brief spike from 1.3105 to 1.3125 and then headed back to 1.3100. The underlying tone indicates further sell-interest on upticks as Fed tapering risk and subsequent de-risking is keeping the dollar elevated. However, the 200-dma at 1.3070 is providing a prop and specs are currently a little reluctant to push the range parameters.

    [USD, JPY]
    USD-JPY headed lower in Europe as deep losses across global equity markets weighed on the JPY crosses. Weak longs were stopped out in USD-JPY in a quick move from 98.30 through 98.00 and follow through interest sent it to intra-day lows just under 97.75. London names reportedly sold AUD-JPY from 90.30 to 89.60 lows, while EUR-JPY sank from 128.90 to 128.20. The pick up in JPY mirrored equity markets losses in Europe, while Nikkei futures were also around 200 points lower since the cash market closed. In Tokyo trade, specs were encouraged by weekend election polls in the Tokyo Metropolitan area, where the coalition won an easy victory and raised optimism ahead of the Upper House election in July. PM Abe has promised more growth measures after the elections.

    [GBP, USD]
    GBP came under early pressure amid news that Vodafone has agreed to buy Germany's Kabel Deutschland for EUR 7.7 bln. The deal has been in the pipeline for some weeks and fueled recent demand for EUR-GBP topside hedging from 0.8500 to 0.8550. Nevertheless, EUR-GBP firmed up from 0.8515-20 in late Asia and extended through 0.85350 after the European open, which forced Cable through bids at 1.5350-60. Cable upturns are likely to be limited given the underlying dollar strength, which has support from the rise in U.S. Treasury yields. Cable resistance is tipped into 1.5400 from short-term accounts, while more offers are seen at 1.5415-20 and ahead of 1.5450. On the downside, buyers are noted from 1.5330, while the 100-dma comes in at 1.5317 today.

    [USD, CHF]
    CHF firmed up against the EUR and the USD as broad based deleveraging fueled a flight to safety. EUR-CHF pulled back from the 1.2275 area in late Asia and accelerated through 1.2250 during the European session. EUR-CHF is trading around levels where good demand has emerged in recent weeks. June-13 lows of 1.2223 saw reasonable demand, while the 200-dma at 1.2214 is likely to see a heavy congestion of orders. The EUR-CHF tone has been dependent on USD-CHF movement. Currently, the dollar pairing is trading around 0.9330 after pulling back from 0.9375-80. However, the dollar should see more inflows with liquidity a major concern amid Fed policy expectations and the China credit crunch.

    [USD, CAD]
    USD-CAD reached new 2013 close to 1.0540. More heaviness in commodity and equity market prices lifted USD-CAD through 1.0500 option barriers into the European open and it extended to the 1.0540 region on general dollar strength. On Friday, CAD$ was weighed by the softer Canadian CPI and retail sales data. Further USD-CAD gains are likely to be absorbed by option protective selling ahead of 1.0550 barriers. However, buyers are likely from 1.0500 initially and then into the 1.0475-80 area.

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