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By XE Market Analysis October 3, 2013 6:20 am
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    XE Market Analysis: North America - Oct 03, 2013

    The dollar remained on the back foot after yesterday's damp ADP reading, while the impasse in D.C. continued to dominate headlines. Markets are still taking a more optimistic view that politicians will eventually carve out a solution. Asia markets benefited from a revival in risk appetite amid signs that momentum in China's economy is well sustained after non-manufacturing PMI hit a six-month high, which weighed on JPY. However, European investors were more cautious and as S&P futures fell regional indices turned mixed, though appetite for leverage positions was sustained. European data was broadly positive. U.K. services PMI underscored the resurgence in the U.K. economy after the composite Q3 PMI reached its best levels in 15-years despite a moderation in September to 60.3 from 60.5 previously. Eurozone services and composite PMI was revised up a notch to 52.2 from 52.2 despite mixed national readings and a notable jump in Italian data confirmed that the Eurozone recovery is broadening.

    [EUR, USD]
    EUR-USD consolidated gains near 1.3600 after an overnight push to 1.3623 highs. Very good offer from 1.3630 capped the advance, though Asian sovereign support has underpinned under 1.3600 and bids are noted at 1.3575-80 and 1.3550. There are sizeable option maturities at 1.3590, 1.3600 and 1.3615, which could keep ranges narrow until the N.Y. open, where the focus will shift back to developments in D.C., where there is growing optimism that politicians will reach a deal ahead of the debt ceiling deadline in around two-weeks. Eurozone services sector PMI data was uneventful. The composite reading came in at 52.2 from 52.1 previously, while the national readings were a mixed bag. Italian services PMI posted its first rise in business activity in 28 months and the French reading was revised up, but Spanish ebbed back below 50.00 and the German outturn was revised down. Eurozone retail sales beat expectations at 0.7% m/m and the July reading was revised up from 0.1% to 0.5%, though the y/y rate was still in negative territory at -0.3% y/y.

    [USD, JPY]
    USD-JPY is holding up despite several bearish calls from leading research desks in the last few sessions. The dollar pairing edged out highs over 97.85, though the bulk of today's modest gains came in Asia after very strong bids from 97.25 put a floor in place. Institutional investors and a semi-official entity have been noted for the last two sessions, while a pick up in the JPY crosses also provided a positive lead. EUR-JPY is buoyant over 133.00, though the U.S. debt ceiling debacle should at least limit USD-JPY's ability to rise in the near-term and keep alive bearish hopes. However, with prominent Japanese accounts under the market this pair is more likely to range trade as offers cap into 98.00.

    [GBP, USD]
    Cable held firm over the U.K. services PMI release. U.K. clearers forced a 1.6187 low ahead of the release, but met an Asian account for the second session, while system funds were also buyers and forced a move back into the 1.6230 area, where it started the European session. The headline PMI release moderated to 60.3 from 60.5 previously, which was in line with our forecast, but better than the majority of market expectations. The breakdown was also impressive with outstanding business hitting the highest levels since February 2000. Markit's chief economist said that the combined PMI readings this week suggests Q3 growth at 1.3%. However, Williamson said that growth was being led by financial services, while consumer facing services continue to struggling, which is a reflection of the squeeze in incomes. GBP should remain on the firmer side, though good Middle Eastern account offers remain from 1.6250, along with option exposure at 1.6275.

    [USD, CHF]
    CHF is still in a holding pattern as uncertainty in the U.S. is limiting risk taking. EUR-CHF is supported over 1.2250 after it rebounded out of 1.2215 on Tuesday. Option positioning supported on the periphery amid reports that European names were picking up one-month 1.2350 strikes. USD-CHF was steadier just ahead of 0.9000 after it retested the 0.8990 level on Wednesday following the ECB press conference. USD-CHF remains a sell on upticks while the U.S. government is shutdown, though there is cautious optimism that it will galvanise politicians to reach a solution on the debt ceiling.

    [USD, CAD]
    USD-CAD edged under 1.0320 in early Europe as a risk appetite boosted CAD$. The catalyst for more positive sentiment was China non-manufacturing PMI, which hit a six-month peak. However, sentiment faded in Europe as the uncertainty over the U.S. outlook cast a shadow and USD-CAD backed up to 1.0335. We expect activity to remain limited until the U.S. debt situation is resolved. There are some hopeful negotiation noises coming from D.C. however, and a rebound in oil prices and equity markets could seen USD-CAD test 1.0300.

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