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By XE Market Analysis June 26, 2013 6:35 am
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    XE Market Analysis: North America - Jun 26, 2013

    The dollar was supported and the euro fell amid Tuesday's firm U.S. data round and an ongoing communication offensive by ECB's Draghi and co, who guided money market rates lower, put a floor under stocks and reduced eurozone bond yield spreads today. Italy tried to limit the fallout from reports that it could be nursing heavy losses on derivatives restructuring that was carried out at the height of the eurozone crisis. Meanwhile, AUD was boosted after former PM Rudd won a leadership ballot against PM Gillard and will become the new Labor leader and PM ahead of the general election on September-14.

    [EUR, USD]
    EUR-USD extended losses through 1.3050 as corporate backed buying gave way, along with large sell stops. The downturn in the EUR tracked softer money market rates following dovish speak from ECB's Draghi and Coeure on Tuesday. Draghi also continued the communication push today, reiterating that policy will stay accomodative for the foreseeable future and exit from exceptional monetary policy remains distant. Draghi reminded the market that the OMT was still ready to be activated, which is timely amid the recent rise in eurozone bond yields due to Fed policy tapering expectations and the associated market stress, which fueled spreading widening across the euro-area. The move lower in EUR left it inside today's option expiries between 1.3000 and 1.3035. We anticipate more liquidation by EUR longs should 1.3000 give way.

    [USD, JPY]
    USD-JPY options reduced market movement since the Asia afternoon. An early sprint higher in Asia was shortlived after large Japanese accounts and offshore names capped from 98.25 amid large maturities between 98.00 and 98.40 today. Intra-day longs threw in the towel and by early Europe a low print of 97.33 was noted. However, gamma trading is prevalent on dips, while good technical levels on either side of the market continue to keep prices rangebound. The 100-dma close to 97.00 today sees a plethora of bids, while the Ichimoku cloud base at 98.15 is another level to negotiate on the topside due to recent negative closes. Thursday's investment trust from Nomura will also be of interest to guage appetite for offshore investment.

    [GBP, USD]
    Cable weakened on month-end flows and dollar firmness. The usual central bank demand emerged in EUR-GBP from 0.8470 early on, while a German corporate buy order went through to take the cross within a few pips of 0.8500. The modest EUR-GBP rally forced Cable through support at 1.5400-10 and sell stops gave way to lows just below 1.5385. Thereafter, dollar demand picked up, while EUR-GBP was capped as EUR-USD headed through 1.3030. Daily momentum is negative for Cable on recent failure to clear 1.5500, but on the daily chart Monday's rebound out of 1.5345 should still encourage buying interest on dips. Gamma trading emerged from 1.5375 and 1.5350 amid rebalancing by option portfolio playing the range, which limited the downturn. Meanwhile, we do not anticipate much market impact from the government's spending review, with most of the details around leaked in the press in the last two days.

    [USD, CHF]
    EUR-CHF pulled back after it was unable to sustain a move just over 1.2300 on Tuesday. EUR-CHF headed to the 1.2250 area after today's European open as fresh money poured into the swissy. USD-CHF was initially capped on upticks, but an extended EUR-USD drop lifted it out of 0.9375 back over 0.9400. After recent market volatility, SNB board member Zurbruegg reiterated on Tuesday the importance of the CHF cap, which he said remained as current as ever. This should limit how far the CHF can rally and there is very good local demand in EUR-CHF ahead of 1.2220, while good long-term support is noted from 1.2215 (200-dma) to 1.2200. USD-CHF is also looking to higher levels amid talk of good fund demand on dips today, while a move back over the 100-dma around 0.9405 should also be a positive.

    [USD, CAD]
    USD-CAD is consolidating under 1.0500 after it was unable to sustain higher levels on Tuesday. A pick up in equity markets boosted the CAD$ from 1.0548 during the N.Y. morning and it headed back to 1.0480 by today's European open. Price action is quite disjointed still as equity market volatility saw CAD$ see-saw between positive and negative territory. Currently, a hold above 1.0450 is keeping bias on the topside and bids are tipped between 1.0480 and 1.0460 in the near-term. Over 1.0500 there are a plethora of offers from 1.0520-30 and into 1.0550, while long-term resistance is seen into 1.0570-75.

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