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By XE Market Analysis October 11, 2013 6:23 am
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    XE Market Analysis: North America - Oct 11, 2013

    Yesterday's breakthrough in the U.S. debt impasse boosted risk appetite and weighed on JPY and CHF. The USD was steady against JPY, but fell against EUR, GBP, CHF and AUD. The AP said that Obama rejected the Republican proposal because it did not include an end to the government shutdown. However, both sides are still round the table and there are hopes that a deal will now be agreed ahead of next week's debt ceiling deadline. Standout flows in Europe went through EUR-JPY and EUR-GBP, which lifted EUR-USD to 1.3580. Some macro funds started to shift the focus away from the debt ceiling to the Fed policy outlook after the recent Yellen nomination. Overnight, there was optimism on China after PBoC vice governor Gang said GDP was expected to beat the official target of 7.5% this year and long term growth was likely to be maintained above the 7% level.

    [EUR, USD]
    EUR-USD edged up through offers from 1.3550. A rise in risk appetite provided support via increased EUR-JPY demand, while EUR-CHF is holding firm and EUR-GBP is on the front foot. Macro funds have sold USD tentatively today as some focus shifts to the Fed outlook on increasingly expectations that a deal on the U.S. debt ceiling will be reached ahead of next week's deadline. The fiscal wrangling in the U.S., which has seen the government shutdown for ten days, reduces the likelihood of Fed policy tapering and the market also welcomed the nomination of Yellen as the next Fed Chair this week. Yellen, who is also a policy dove, should provide continuity from Bernanke's policy stance. We anticipate kneejerk dollar gains on concrete news out of Washington D.C. However, very good support at 1.3460 has held since mid-September and funds are still positioning for the upside on dips. Above 1.3600 supply related to an outstanding 1.3650 option barrier has fuelled talk of range binary exposure between 1.3450 and 1.3650.

    [USD, JPY]
    USD-JPY's upside looks more limited based on Japanese order books. After reaching 98.55 during the Asia afternoon it has drifted back towards 98.30 since the European session got underway. We still anticipate limited movement on the downside due to the broad rally across equity markets. However, both USD-JPY and the JPY crosses travelled a long way on the topside in the last 24 hours and consolidation could set in. Very good USD-JPY offers are noted in good size from 98.60 and every few pips into 98.80, while into 99.00 option flows are anticipated, along with exporter interest. EUR-JPY also met a good offer into 133.50 and AUD-JPY stalled ahead of 93.50 after good investment trust related flows went through overnight. Note, that flows could also drop off rapidly as the session progresses due to a long weekend in Japan and the U.S.

    [GBP, USD]
    Cable moved just above 1.6000. Good GBP-JPY demand went through overnight, while the USD edged lower during the European time zone. Cable progress over 1.6000 was limited by retail account selling and EUR-GBP firmness. The cross is on the front foot for the third consecutive session and headed back to 0.8495, where offers emerged on Thursday ahead of the psychological 0.8500 level. GBP bulls have had pause for thought this week after U.K. production data unexpectedly fell, while the latest construction output numbers released today have also dropped. The ONS said output fell 0.1% between August and July compared with a 2.8% rise in July. The releases offered justification for the BoE's forward policy guidance, which has been heavily debated in the investment community as U.K. fundamentals strengthened.

    [USD, CHF]
    CHF is consolidating losses. EUR-CHF topped out into 1.2330 offers and USD-CHF pulled back through 0.9100. Fatigue has set in via the FX market as participants await news of a concrete deal from Washington. Both sides are talking, but so far no agreement has been reached. Nevertheless, market optimism on a deal has seen a broad based rally in stocks, which has weighed on funding currencies like the CHF and setbacks in USD-CHF and EUR-CHF have been very shallow. Appetite to buy the EUR-crosses limited the USD-CHF rally, but the downside looks limited now between 0.9100 and 0.9060. EUR-CHF is also is much better shape than the last week or so and support from 1.2300 to 1.2280 should underpin.

    [USD, CAD]
    The CAD got a bit of a boost from the improved expectations for political movement in the U.S., which took USD-CAD to session lows of 1.0372 on Thursday. However, follow through was limited due to standing bids from 1.0370 and it edged back to 1.0410 overnight. Short term accounts faded upticks due to the rise in risk appetite, but movement is still fairly limited and it didn't break into new territory, leaving it just under 1.0400. We expect momentum to begin to pick up on a move through 1.0350 however (Wednesday lows), where 1.0300 could be targeted.

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