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By XE Market Analysis June 27, 2013 6:47 am
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    XE Market Analysis: North America - Jun 27, 2013

    The FX market was relatively quiet overall as month-end/quarter-end reduced volumes. Asia provided a positive lead, while in Europe the tone was more mixed, which dampened on activity. EUR marked time above 1.3000 throughout. However, GBP dropped after U.K. final Q1 GDP saw a downward revision to y/y growth to 0.3% from 0.6% previously. USD-JPY benefited from offshore fund demand in anticipation of flows related to today's Toushin issuance from Nomura. EUR-CHF rallied back over 1.2300 as USD-CHF moved through 0.9450 on positive technical indicators and macro fundamentals. Data releases were mixed, with German jobless numbers and the EU Commission's ESI confidence indicator coming in better than expected, while Eurozone M3 money supply growth decelerated more than expected. Meanwhile, today's Italian debt auction saw a rise in refinancing costs.

    [EUR, USD]
    EUR-USD is trading inside a narrow range. Appetite to take on large positions is very limited today. After the EUR reclaimed 1.3000 by the N.Y. close it edged up through 1.3040 by the European open. A positive Asian equity market performance weighed a little on the dollar tone, while the EUR got added support from EUR-JPY demand. Further gains ran out of steam, with many players sidelined into month-end/quarter-end. The EUR should still meet selling pressure on upticks after a series of weak closes amid dovish policy rhetoric from ECB officials. However, note the EUR crosses are expected to see demand related to quarter-end hedging and USD selling is tipped to go through.

    [USD, JPY]
    USD-JPY demand accelerated through 98.00. Dollar buying went through from 97.70 after the European open, while speculative flows linked to Nikkei futures and an investment trust launch also supported. A high around 98.35 was noted, though exporter offers were evident on upticks and are reportedly layered into 98.50. Nomura Toushin issuance fueled demand for USD, EUR and AUD on dips, while emerging markets should also see some modest interest from Japanese investors. For now, short term accounts have shrugged off the latest MoF weekly flow data, which saw the biggest net selling of foreign bonds since April 2012. However, it may point to limited upside for USD-JPY unless more domestic money begins to flow out of Japan into overseas bonds.

    [GBP, USD]
    GBP fell on U.K. final Q1 GDP and current account data. Cable dropped from 1.5325 to 1.5270 after q/q GDP came in at 0.3% as expected, but the y/y reading was revised down to 0.3% from 0.6% previously. Looking at the breakdown, the biggest drop in real disposable incomes since 1987, by -1.7% q/q, stood out. The current account deficit was also worse than expected at GBP 14.5 bln from GBP 13.6 bln in Q1. The numbers support expectations that BoE policy remains on hold, though recent forward looking data has started to show signs of improvement. Cable buyers are noted into the 1.5250-60 region from U.K. clearer order books and option desks, but a break below will see accelerated loss on more sell stops.

    [USD, CHF]
    USD-CHF was supported ahead of 0.9400 as positive technical indicators and a rise in risk appetite kept the downside underpinned. The upside has generally attracted after an initial kneejerk dip amid the downward revision in U.S. GDP. The U.S. data allayed fears of Fed policy tapering and this has boosted demand for USD-CHF. From a macro perspective the U.S. economy is still doing better than its peers, making USD-CHF longs an attractive trade. Buyers are noted at 0.9400 initially and then into 0.9380-85, where it traded after GDP. On the topside, there were frequent periods of corporate offers, but the dollar pairing managed to carve out highs around 0.9460 ahead of the N.Y. open. Sellers could increase in size into 0.9500, where outstanding option positions are also noted. Several strikes traded into that region earlier in the month and are likely to absorb dollar demand.

    [USD, CAD]
    USD-CAD's correction extended through 1.0425 after the European open as a rise in risk appetite boosted demand for the commodity bloc currencies. However, dollar buying picked up into this region and it gravitated back to the 1.0450 area. Equity markets and commodities may guide action intra-day. However, there is also month-end flows to contend and this may make for a choppy 24 hours or so.

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