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By XE Market Analysis October 10, 2013 6:01 am
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    XE Market Analysis: North America - Oct 10, 2013

    There was cautious optimism that the impasse in D.C. could reach a breakthrough. The WSJ said that conservative Republicans are coming round to the idea of an increase in the U.S. borrowing limit, while the National Journal said that Republicans are on track to approve a debt limit extension - lasting between four and six weeks, which would allow time for subsequent fiscal negotiations. According to the report, a short term deal could be passed as early as Friday. This has seen equity markets move higher which weighed on JPY and CHF. The USD still held on to a firmer tone, which is a consequence of yesterday's reduction in positioning, leaving Cable near 1.5930 and EUR was just above 1.3500 after it found a base around 1.3490.

    [EUR, USD]
    EUR-USD found support under 1.3500 and moved up to 1.3530 as the crosses absorbed the underlying dollar bid tone. An improvement in risk appetite drove EUR-JPY up to the 132.30 area, which aided EUR-USD, while EUR-CHF consolidated gains above 1.2300 and EUR-GBP edged out highs near 0.8490 ahead of the BoE policy decision. Meanwhile, the ECB monthly bulletin was also little changed from last week's statement from Draghi, which backed the current easing bias. Disappointing production data from Italy and France justified the ECB's dovish stance. The intra-day focus will remain on developments from Washington D.C., where a round of talks are expected between Republicans and Democrats today.

    [USD, JPY]
    USD-JPY benefited from a moderate rally via the Nikkei 225. It moved up from the 97.30 region on importer demand and further appetite to reduce recent dollar short positions, which carried it to 97.80. The JPY-crosses also remained healthy, which is a function of investor demand for overseas asset rather than sentiment. Despite the rally in Japanese stocks today there is still investor uncertainty coming from events in D.C. However, EUR-JPY has been fairly robust on a 131 handle and AUD-JPY has been a buy on dips since the start of the week. The 5.4% m/m rise in Japan core machinery orders was positive and supports the view that the Japanese recovery is picking up.

    [GBP, USD]
    GBP has been on the defensive today, leaving Cable near 1.5930 after longs pared back positions last week, while yesterday's U.K. industrial production miss also weighed and it hit lows just under 1.5920 today. The BoE are expected to leave policy unchanged today and no statement is expected. There was speculation that EUR-GBP supply related to a corporate order may go through over the morning fix today, but this did not have any impact on the cross, which was supported throughout, leaving it a short distance from the 0.8500.

    [USD, CHF]
    CHF is consolidating losses in the wake of mild optimism that U.S. politicians may be closer to reaching a resolution ahead of next week's debt ceiling deadline. Republicans and Democrats will meet later today and U.S. press sources suggest that a short term deal could be in the offing, which would buy time for subsequent fiscal negotiations. USD-CHF is holding on to the 0.9100 handle after meeting a few early sellers from 0.9130-40 resistance. More concrete signs of progress in the U.S. could lift the dollar pairing through the 0.9150-75 zone, where more offers are anticipated. EUR-CHF is still moving around the 1.2300 area after it briefly traded above the 200-dma on Wednesday.

    [USD, CAD]
    USD-CAD is trading on a robust footing after underlying dollar strength triggered stops above 1.0400 and it extended into September-9 highs near 1.0420. Resistance from profit take orders and more options exposure from 1.0425 encouraged tentative selling from 1.0420 at the European open. The downside met good short term support from fund names and model funds and it was underpinned into 1.0390. Movement on the USD-CAD downside could accelerate on concrete signs of progress in Washington.

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