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By XE Market Analysis November 22, 2013 6:36 am
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    XE Market Analysis: North America - Nov 22, 2013

    The dollar remained soft against EUR and GBP, but was supported against JPY and the commodity bloc. EUR benefited on more short covering and broke back above 1.3500 amid strong German Ifo data and German Q3 GDP was confirmed at 0.3% q/q. Cable held on to levels around 1.6200, though profit taking by longs capped gains. AUD continued to struggle after negative currency talk from RBA and IMF this week. RBNZ also tried its hand at FX jawboning and this forced NZD through the 200-dma, though it was helped by weak AUD and macro funds pulling out of the commodity bloc. Elsewhere, BoJ Governor Kuroda told the Diet that it was too early to talk about QE exit, adding it would adjust policy when needed, which maintained the weight on JPY.

    [EUR, USD]
    EUR-USD extended the short covering rally. It rose out of 1.3470 in early Europe and cleared 1.3500 on German Ifo strength. After the German Ifo release ECB's Nowotny said interest rates are extremely low and should not be seen as the long-term equilibrium, which exacerbated the run on 1.3525 and encouraged dip buyers that are trying to keep the pair elevated ahead of 1.3500. However, Nowotny added that if they are approaching a period of long-term stagnation there could no question of having higher rates in the foreseeable future. Meanwhile, the ECB has also decided to suspend repayments of the 3-year LTRO during the year-end holiday, which will improve liquidity, though could reduce the immediate need for the ECB to act again on policy. ECB's Draghi was also on the wires talking about progress in the Eurozone. He said interest rates were low because the economy is weak and added that overtime low rates threatened financial stability, but this was not the case now. Draghi said that the situation has greatly improved in the Eurozone this year.

    [USD, JPY]
    USD-JPY and the JPY crosses were well supported by equity market gains. The Nikkei carved out an early six-month high, which boosted USD-JPY to 101.35 in Asia. Follow through was contained by profit taking and exporter selling picked up ahead of more option barrier exposure at 101.50. Demand for USD-JPY on dips is very strong, with importers and fund names likely to keep the downside limited. Bids were lifted to higher levels on Thursday and support under 101.00 is now seen from 100.80 to 100.50. Meanwhile, there is more massive expiry congestion that should effectively box this pair in until the N.Y. options cut. There are $2 bln worth of strikes rolling off at 101.00, $2.7 bln at 100.00 and $2 bln at 102.15.

    [GBP, USD]
    Cable is trading a tight range close to 1.6200. There was earlier upside traction from EUR-USD, which carried it to the 1.6215 region before it moved back across the 1.6200 level. Short term accounts that played the run up from the 1.6100 region and 1.6050-60 earlier in the week are taking profit on 1.6200 or above since the European open and EUR-GBP's move out of 0.8320 to 0.8345 also weighed. However, we still anticipate an eventual move on recent trend highs from October near 1.6250-60 amid positive U.K. fundamentals.

    [USD, CHF]
    CHF is still tied to USD and EUR fluctuations, with little direct flows going through. EUR-CHF drifted into 1.2305 again after it failed to sustain an early move over 1.2320. In today's session the downturn in the cross was a symptom of USD-CHF's move back on 0.9100 after EUR-USD broke back above 1.3500. Since the ECB cut rates the EUR-CHF downside has been well supported by local names. A brief flutter under 1.2300 was limited after SNB said it was evaluating the impact from the recent ECB move. This lack of direct action should continue in the near-term, with the focus elsewhere.

    [USD, CAD]
    USD-CAD extended gains after Thursday's rally on dollar strength against the commodity bloc currencies. A lack of downside progress this week and a series of higher highs encouraged short term accounts to attack topside levels. Barriers at 1.0500 fell on Thursday and buy stops at 1.0520 triggered follow gains through 1.0550 today to match August highs at 1.0568. The focus for longs is now the July peak at 1.0609, which are multi-year highs. On the macro front, CAD traders will focus on October CPI later today.

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