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By XE Market Analysis November 12, 2013 7:15 am
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    XE Market Analysis: North America - Nov 12, 2013

    It was a busy European morning session. From the London open the dollar found a bid as USD-JPY demand steepened on the way up to 99.80 and this weighed on EUR and Cable. Movement via EUR-USD was choppy as market participants digested comments from ECB's Nowotny and Asmussen. Overall, it supported the view that the ECB is open to providing more stimulus if needed. However, EUR could not sustain lower levels due to very good support into 1.3350 and it was largely unchanged intra-day near 1.3400 amid cross flows. GBP slumped as U.K. CPI came in on the weaker side, which reinforced the current BoE policy stance ahead of tomorrow's Inflation Report. Elsewhere, SEK fell sharply as the spectre of deflation also hit Sweden, along with M&A related selling.

    [EUR, USD]
    EUR-USD experienced a choppy morning session. Early on it headed to 1.3375 as underlying dollar strength weighed from 1.3400. ECB's Nowotny said that stagnation not inflation is the threat, though claimed that deflation was not imminent, which triggered a fleeting EUR bid. Follow through was limited by an overhang of sellers, along with comments from ECB's Asmussen in the German press. He said the ECB has not yet reached the limits on what it can do on interest rates depending on inflation developments and triggered a move to intra-day lows near 1.3370. Follow through was limited to 1.3360 and the pair squeezed up to 1.3410 amid a strong EUR-GBP rally and EUR-JPY firmness. Nowotny and Asummussen had opposing views on the usefulness of publishing central bank minutes. Nowotny thought it could be risky.

    [USD, JPY]
    USD-JPY extended gains to 99.80 after the London open. JPY has underperformed since last Friday's NFP release as retail names piled into the crosses, while USD-JPY is benefiting from general dollar strength as Fed taper risk for December picked up. Fed's Fisher stated that monetary accommodation was getting riskier by the day and follows other more hawkish sounding rhetoric over the last couple of sessions. Markets have taken the risk of Fed taper in their stride though, which is markedly different from the summer when Fed jitters triggered broad based deleveraging. Investors are encouraged that a reduction in Fed taper would only happen if the economy was on a sound footing and recent fundamentals suggest that the U.S. is moving on to a stronger footing.

    [GBP, USD]
    Cable is just about holding on to levels ahead of 1.5950, where it also found buyers last Friday and Monday following the large drop over the NFP reading from 1.6085. 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. Today the focus will come from U.K. CPI data.

    [USD, CHF]
    CHF is mixed amid contrasting flows in EUR and USD. USD-CHF moved back into 0.9200 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 headed back over 1.0500 as the dollar bid steepened following last week's U.S. NFP report. Last 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, though in the very near-term the dollar looks like it will lead things.

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