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By XE Market Analysis November 14, 2013 5:39 am
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    XE Market Analysis: North America - Nov 14, 2013

    The dollar traded on the softer side as markets positioned off dovish Yellen comments in prepared remarks ahead of her confirmation hearing later today. She said that the economy and jobs are performing far short of potential, which buoyed sentiment amid expectations that under her leadership the Fed will stay easy for longer. USD-JPY and the JPY crosses rallied against this backdrop. Japan Finance Minister Aso said that it is important that Japan has FX intervention as a policy option, which lifted the dollar above 100.00 in Europe. EUR continued to find support from short covering interest, though upside momentum was capped by soft Eurozone GDP and option related offers ahead of 1.3500. GBP fell after U.K. retail sales fell by 0.7% m/m in October, which forced Cable briefly through 1.6000.

    [EUR, USD]
    EUR-USD is underpinned on dips as repositioning by excessive shorts continues to dominate price action. Yesterday's dovish comments from ECB's Praet and other recent remarks from ECB officials have failed to keep the EUR lower. The impetus in overnight trade came from dovish sounding remarks from Yellen in prepared comments ahead of today's confirmation hearing. Excessive market positioning and hopes for an extended period of dovish Fed policy left EUR bias with the topside. A move on 1.3500 late Wednesday and in early Asia met option related supply and fund offers are also noted a bit higher up. This is likely to restrict movement, along with weak Eurozone GDP numbers.

    [USD, JPY]
    USD-JPY broke 100.00 for the first time since September 11. Heavy USD demand went through overnight, with real money, importers and option names active from the 99.15-20 area. Appetite steepened as equity markets responded to dovish comments from Yellen, while Japanese finance minister Aso said it was important that Japan has FX intervention as a policy option. There was no follow through once 100.00 gave way as exporters moved in, along with gamma rebalancing. Note, USD-JPY hasn't got the best record of sustaining moves over 100.00 since the summer. Today's move is a positive development though and large structures between 101.00 and 103.00 for the end of the year could be vulnerable as demand for protection rises in line with implied vol. This will be dependent on the evolution in Fed policy at we approach the next policy meeting in December.

    [GBP, USD]
    Cable moved back through 1.6000 after U.K. retail sales missed by a wide margin. It fell 0.7% m/m and clipped Cable by around 30 pips so not a big move in the grand scheme of things. Cable is still benefiting today from underlying dollar sales and yesterday's BoE Inflation Report, where the BoE policy mix is encouraging for long-term investors positioning for further upside momentum in the U.K. economy. BoE's Fisher also told the BBC in a radio interview that an unemployment fall to 7% as soon as next year was not an automatic trigger for a rate rise. The remarks indicate that the BoE will keep policy easy for as long as it can even if it meets some of its long-term policy goals quicker than previously forecast.

    [USD, CHF]
    CHF remained narrowly mixed amid the recent contrasting flows via EUR and USD. USD-CHF is marking time near 0.9160 after it headed down to 0.9125 yesterday versus last week's 0.9250 peak. The impact on EUR-CHF was muted as EUR-USD moved higher. The dollar is still expected to trade on the firmer side in the longer term amid a rise in Fed taper expectations, though a period of sideways movement may influence before trending higher again. Overnight, the dollar was weighed a touch ahead of Yellen's confirmation hearing. However, U.S. data has been on the rise and recent Fedspeak has indicated that the risk of policy tapering is higher than it was over the U.S. government shutdown. Hence, any dollar corrective action could be seen as a buying opportunity.

    [USD, CAD]
    USD-CAD is trading at the familiar 1.0475 area. However, it corrected from the 1.0500 area to 1.0440 amid dollar selling on Wednesday. The downturn was influenced by a short covering rally in EUR-USD and expectations of dovish commentary from Yellen. The CAD$ also got positive momentum from a pick up in stocks, oil and gold prices. In the bigger picture, despite the BoC's tightening bias gone, stronger U.S. economic growth should tend to underpin CAD strength over time. Near term though, order flow will determine USD-CAD direction, where currently, it appears the sellers over 1.0500 have the upper hand.

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