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By XE Market Analysis October 7, 2013 5:08 am
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    XE Market Analysis: North America - Oct 07, 2013

    Interest was light in in Asia and Europe as the impasse over the U.S. debt ceiling extended through the weekend. The House passed a bill guaranteeing that all federal workers laid off during the government shutdown will be paid the wages they would have earned when they were not allowed to work and some workers were also called back to work. However, the lack of progress between Obama and Boehner kept JPY underpinned, while the USD traded on the heavier side on U.S. uncertainty. EUR and GBP found a modicum of support on dips, though both currencies held on to the majority of last Friday's losses. The commodity bloc currencies were softer and AUD fell from 0.9450 in Asia and broke 0.9400 in Europe, which helped USD-CAD back over 1.0300. There were limited leads in Europe amid an empty economic data calendar. In Asia, the World Bank cut its forecast for 2013 growth to 7.1% from 7.8% previously due to slower growth in China and India compared with its April forecast.

    [EUR, USD]
    EUR-USD started the overnight session near 1.3550 and after a period of two-way chop close to 1.3570 it moved into the 1.3600 region. The dollar was weighed by the lack of breakthrough on weekend negotiations between Obama and Boehner. However, Friday's move under 1.3600 reduced heavier EUR demand and there remains an overhang of offers from 1.3600, which capped upward momentum, along with EUR-JPY heaviness. The EUR should find a modicum of support on dips, but ranges are likely to remain tight as the topside is limited by a weaker daily chart pattern. Into the U.S. open the focus will shift to fresh developments from D.C. Last Friday the dollar rallied on optimism that the U.S. would move towards a debt ceiling deal, but uncertainty has created a vacuum and this is weighing on sentiment today.

    [USD, JPY]
    JPY extended overnight gains as European markets followed Asia lower. Flows since the European session got underway were mostly from short term funds that are positioning for further yen upside as the U.S. impasse dragged through the weekend. USD-JPY fell from 96.50 in early Asia and by the time Tokyo closed it was pressurising the 97.00 level. Light stops have been flushed out between 97.00 and 96.90, though follow through was absorbed by very prominent Japanese bids that are reportedly keeping the pair underpinned ahead of key support at 96.80-85. Over the last week Japanese institutional accounts and a semi-official entity were noted on the way down. However, if U.S. politicians do no make any progress in the coming sessions then softer levels look likely. EUR-JPY also headed into 131.50 on yen inflows and AUD-JPY has move into 91.00 compared with 91.95 at the Asia open.

    [GBP, USD]
    GBP traded on the firmer side, although flows remain fairly light amid an empty economic data calendar and the lack of progress in the U.S. over the weekend. GBP was one of the currencies that took a major hit late last week as overstretched longs liquidated exposure. The move was driven mainly by short covering in EUR-GBP after it bounced from under 0.8350 back over 0.8400, which drew in a wave of model and momentum account demand. However, long-term economic fundamentals are still a GBP positive and Cable has found buyers ahead of 1.6000 and moved into the 1.6075 area today, while EUR-GBP was capped from 0.8470 ahead of a congestion of orders into 0.8500.

    [USD, CHF]
    Late last week a USD-CHF rebound from under 0.9000 boosted EUR-CHF to the 1.2300 region. We anticipate dollar sellers on strength until the U.S. debt impasse is resolved and this should limit USD-CHF gains over 0.9050. EUR-CHF pulled back from the 1.2300 region in Asia and edged back to 1.2370. Note, however, that movement under 1.2230 last week met very strong Swiss name support amid talk of long-term barriers at 1.2200. There was also speculation that the SNB may be supporting USD-CHF on dips in order to offset potential downside pressure in the cross. The thinking is that an extended USD-CHF downturn could destabilise EUR-CHF and threaten the SNB's lower limit at 1.2000.

    [USD, CAD]
    USD-CAD recovered from levels under 1.0300 and edged back towards the 1.0325 area. Volumes were very low overnight, but CAD$ tended to track movement via the other commodity bloc currencies, which were weighed by uncertainty over the growth outlook as the impasse over the U.S. debt ceiling extended beyond the weekend. USD-CAD may remain hemmed in early on in the week as speculative flows are kept to the minimum. Close-to-market bids lie at 1.0280-90 and offers from short term accounts are noted from 1.0320-30 ahead of corporate hedging flows from 1.0340-50.

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