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By XE Market Analysis November 7, 2013 6:44 am
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    XE Market Analysis: North America - Nov 07, 2013

    The FX majors held their ground ahead of today's key event risks, which included rate decisions from the BoE and ECB, along with U.S. advance Q3 GDP and jobless claims data. EUR held the 1.3500 level throughout the session following yesterday's move towards 1.3550, while Cable marked time just under 1.6100 amid a slightly improved EUR-GBP tone. USD-JPY was unable to make further gains as intra-day accounts as markets remained defensive ahead of key event risks. The main mover in the Asia region was AUD, which dropped sharply to trade back at 0.9470 after Australia jobs data disappointed, up 1.1k compared with a 10k forecast.

    [EUR, USD]
    EUR-USD maintained a steady tone near 1.3500. There were early fund buyers of EUR after it moved higher on Wednesday as ECB sources told MNI that an ECB rate change was unlikely today despite the recent inflation dip. Follow through was limited though from 1.3530 today as some of the offers that were filled yesterday were reset. The market is still positioned for EUR downside moves and a steady hand could see a small stop hunt if 1.3570 deals. However, we still expect proprietary accounts and macro funds to sell into strength on dovish sounding rhetoric from ECB chief Draghi.

    [USD, JPY]
    USD-JPY headed back to the 98.75 region after the European open. After large plain vanilla option expiries rolled off at 99.00 to 100.00 there may be better prospects for higher levels. There are still outstanding knock out barriers, but the gamma on these positions is still relatively low as most of them run till early December (gamma usually rises closer to expiry) and may not be heavily defended in light of recent topside hedging. Of course the potential for sustained dollar upside will lie with U.S. data due over the remainder of the week and Fed taper risk. Flows overnight included dollar demand from fund names and importers, while option supply remained, along with exporter offers. BoJ Governor Kuroda and Deputy Iwata both said it too early to debate a QE exit, which is in line with the BoJ's long standing stance. Recent comments from BoJ officials suggest Japan will stay the course on policy and could even ease again next year when the sales tax hike comes into play.

    [GBP, USD]
    GBP experienced sideways movement ahead of today's central bank policy decisions and follows yesterday's slight correction. Cable pulled back after it failed at October-29 highs at 1.6119 on three occasions. The move coincided with a EUR-GBP rebound out of 0.8380 as the cross matched October-3 lows near 0.8378. Economic fundamentals and recent technical studies are favourable for GBP, but U.S. data today and tomorrow is a potential risk as strong readings would support the dollar further. Today's ECB policy announcement is also going to be a challenge for EUR-GBP traders. Most of the recent cross weakness has been on ECB rate cut risk and helped GBP outperform. Meanwhile, the BoE decision should be a non-event for markets ahead of next week's quarterly Inflation Report.

    [USD, CHF]
    CHF consolidated easier levels following the dip against the EUR and USD on Wednesday amid equity markets gains. EUR-CHF moved up through 1.2320 as 1.2300 held and it consolidated gains as hedge funds and corporates put a floor under the market. USD-CHF found buyers near 0.9100, but has struggled to sustain higher levels in recent sessions due to limited appetite to put on fresh position ahead key data and event risks. We expect movement via the CHF to remain relatively narrow early on, though dovish rhetoric from ECB's Draghi and more U.S. data strength is likely to revive the dollar bid.

    [USD, CAD]
    USD-CAD remained hemmed between 1.0400 and 1.0460, which were the parameters from the last three trading sessions. More of the same is likely ahead of the ECB meetings and U.S. jobs report on Friday. Yesterday's firmness via the Canadian Ivey PMI helped the CAD marginally, but a congestion of orders limited movement ahead of key event risks. Bids are in place at 1.0400 with offers from 1.0460, which should continue to keep things narrow.

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