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By XE Market Analysis November 5, 2013 6:40 am
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    XE Market Analysis: North America - Nov 05, 2013

    The major movement in the European morning session went through GBP after U.K. services sector PMI jumped to a sixteen-year high at 62.5 in October. Cable rallied out of 1.5950 to 1.6062 highs and dragged EUR-USD up from 1.3480 to 1.3500, while AUD-USD recovered from 0.9470 back over 0.9500. Meanwhile, ECB rate doves were buoyed by a deceleration in Eurozone PPI to -0.9% y/y from -0.8%, while the European Commission cut the Eurozone 2014 growth forecast to 1.1% from 1.2%. Swiss CPI also unexpectedly dropped to -0.3% y/y, which reinforced the current SNB policy stance. In Asia, RBA left rates on hold at 2.5% as expected and talked down AUD. China's HSBC October services PMI rose to 52.6 from 52.4 previously as new business growth reached a seven-month high.

    [EUR, USD]
    EUR-USD's downside was limited despite a cut in the Eurozone growth forecast and a deceleration in Eurozone PPI data. EUR-USD fell from 1.3500 at the European open to 1.3478 as short term accounts continued to sell into strength ahead of Thursday's ECB meeting. Follow through selling was absorbed in part by corporate support, while Cable's surge from 1.5980 to 1.6060 also fuelled follow through interest, leaving EUR net unchanged. The arguments for an ECB rate cut were reinforced by the cut in 2014 growth from 1.2% y/y to 1.1% and the deceleration in PPI to -0.9% y/y. However, support into 1.3450 has increases since EUR carved out 1.3442 lows in Asia on Monday.

    [USD, JPY]
    JPY is trading on a firmer footing as equity markets in Europe were unable to sustain early gains. Appetite to take on large positions is limited, with the focus on events and data due later this week. USD-JPY pulled back overnight as exporter selling increased ahead of option expiry territory from 99.00 to 100.00, as well as option barrier exposure. Leverage names were sellers of the JPY-crosses, leaving EUR-JPY under 132.50 from 133.30 in early Asia. GBP-JPY also fell from 157.50 to 156.65 and AUD-JPY is threatening 93.00 after the drop from 93.80. USD-JPY edged through 98.20 since the European session opened, but a layer of good Japanese bids should limit losses into 98.00 and 97.70-80.

    [GBP, USD]
    Cable traded as high as 1.6062 amid a very robust U.K. services sector PMI release. There was talk an hour prior to the release that the number would surprise on the topside and the 62.5 outturn was the highest reading since May 1997 and exceeded even the more optimistic expectations. Cable's rebound out of support near 1.5895-00 on Monday and today's subsequent move from 1.5950 should negate some of the bearish overhang on the daily chart. The strong PMI release also reinforced EUR-GBP's heavy tone and it extended to 0.8403, leaving it poised for a push through 0.8400.

    [USD, CHF]
    CHF dipped after weaker than expected Swiss CPI. It fell 0.3% y/y in October from -0.1% in September and this lifted EUR-CHF up from 1.2305 to 1.2315, while USD-CHF moved up from 0.9120 through 0.9130. EUR-CHF found support under 1.2300 in late Asia as equity market futures in the U.S. and Europe found support after a low risk session in Asia. However, equity market gains have faded since the European open. Today's Swiss CPI release is unlikely to influence position taking, but does reinforce expectations that the SNB have no choice but to leave policy on hold for the foreseeable future.

    [USD, CAD]
    USD-CAD recovered from the 1.0400 area on Monday and moved back to 1.0450 after the European open. Corporate names were again mentioned on the bid, with the interest seen layered down to 1.0380. On the topside, offers are seen in place from 1.0450. However, supply is not as heavy as it was last week when option barriers at 1.0500 influenced, along with real money demand for CAD. The downturn in risk assets overnight also added weight on the CAD tone and it may threaten last week's peak just ahead of 1.0500 in the coming sessions.

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