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By XE Market Analysis November 11, 2013 6:32 am
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    XE Market Analysis: North America - Nov 11, 2013

    Markets were in a holding pattern after Friday's much better than expected U.S. NFP print in October, which ramped up Fed taper expectations. Asian markets struggle to due Fed taper risk, but in Europe stock markets were encouraged over the U.S. growth outlook. The dollar pulled back a touch overall on light repositioning, but the underlying trend is skewed to further gains. There was positive data from the Asia region as China industrial production and retail sales rose 10.3% y/y and 13.3% y/y, respectively. The Japanese current account also rose to a Y587.3 bln surplus in September, which is a 14.3% y/y gain and much stronger than expected. Meanwhile, ECB's Coeure said the ECB can cut rates again or provide liquidity if needed.

    [EUR, USD]
    EUR-USD maintained a heavy tone overnight. However, it has not sustained a move lower since early Asia, with bids at 1.3330-40 putting a floor in place. Asian commercial flows have provided some support, along with light USD repositioning, which carried EUR back towards 1.3390-00. Last week's ECB rate cut and ramped up Fed taper expectations should leave near-term risk for a move back to last Thursday's base just under 1.3300. However, corporate bids have increased since the back end of last week, while the upside is capped from 1.3400 to 1.3440-50 now.

    [USD, JPY]
    USD-JPY consolidated under Friday's 99.40 peak as exporter hedging picked up following Friday's strong bid, which came on higher Treasury yields. USD-JPY pulled back from 99.25 and edged through 99.00 overnight. Follow through under 99.00 was limited though on fund demand and fast money flows. Progress on the topside could be limited in the near-term due to outstanding option barriers, which are linked to range binary positions. On an intra-day basis today's partial holiday in the U.S. should lower interest. However, over the coming sessions the risk of Fed taper in December raises the potential for a run on the 100.00 level.

    [GBP, USD]
    Cable has steadied near 1.6000 after it found buyers ahead of 1.5950 last Friday following a large drop over NFP from 1.6085 to 1.5960. Fundamentally, there are still strong arguments to remain long of GBP after U.K. data strength last week. Thursday's steady hand from the BoE was to be expected after the BoE has already laid a well defined forward guidance strategy. It has another opportunity to refresh its position on Wednesday when it releases the Quarterly Inflation Report. The weekend press suggested that the BoE could up its growth outlook and pave the way for an earlier interest rate rise. With this risk in mind GBP should remain supported in the early part of the week. Close-to-market offers are noted in Cable from 1.6030 and there are more over 1.6050. EUR-GBP found a bid from 0.8340 overnight after 0.8300 held late last week.

    [USD, CHF]
    CHF edged higher due to a small correction in USD. USD-CHF moved back into 0.9200 from 0.9225-30 overnight and compared with last week's 0.9250 peak. The impact on EUR-CHF was muted as EUR-USD drifted higher. The dollar is still expected to trade on the firmer side amid a rise in Fed taper expectations, though a period of sideways movement may influence in the near-term before trending higher again. The SNB are likely to monitor the EUR outlook after ECB rate cut reinforced downside pressure. SNB's Jordon said last week that the ECB rate cut created a "complex situation" and that the SNB needs to wait to assess the impact of the move. So far, EUR-CHF movement under 1.2300 has been limited by local name bids into 1.2275-80.

    [USD, CAD]
    USD-CAD has pulled back modestly after it moved over 1.0500 in the aftermath of the better U.S. and Canadian employment reports, bouncing to 1.0503 from near 1.0450. On Friday it was the first time since September 6 the pairing traded on 1.05. However, follow through demand was contained by corporate demand and there were light macro fund orders. We still maintain that in the bigger picture, as the U.S. economy improves, the CAD should benefit.

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