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By XE Market Analysis October 15, 2013 7:22 am
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    XE Market Analysis: North America - Oct 15, 2013

    Signs of progress in U.S. budget talks set the backdrop for a USD rally, which occurred during the European AM session and drove the EUR-USD to a five-day low, though the catalyst came from a remark by China's vice finance minister, who said that it was vital the America maintains the promise to not default on its bonds. EUR-USD made a low of 1.3498 before settling slightly higher as strong bids emerging around 1.3500. USD-JPY peaked at 98.70, its best level since Sep-30. The high beta Australian dollar outperformed amid the broader risk-on theme, matching the outperformance of the Australian stock market today, which was further aided by RBA minutes to the Oct-1 policy meeting that showed policymakers were still considering that a further loosening in monetary policy. AUD-USD logged a four-month peak of 0.9547, a gain of nearly 100 pips on the day. Stronger than expected German ZEW sentiment didn't have much bearing on the euro, while slightly perkier than expected U.K. CPI brought only a fleeting boost to GBP-USD, which peaked at 1.6011 before tumbling to five-day low of 1.5915..

    [EUR, USD]
    EUR-USD dove over a 50 pips amid general dollar buying, which overwhelmed an positive reaction there might have otherwise have been to the strong German ZEW sentiment data. Apparently strong words from China's vice finance minister, speaking from the forum of British-Sino trade talks, sparked dollar buying as he called on Washington to take concrete steps in its budget and debt ceiling decisions before Thursday's deadline as it is vital the U.S. maintains the promise to not default on its bonds. China, of course, is the biggest foreign holder of U.S. Treasuries. The heavy consequences of a default is the main reason markets and most pundits are expecting a deal to be reached. EUR-USD has settled after making a low of 1.3499, which strong bids emerging around the 1.3500 level. Buying interest is reported into last week's low of 1.3484, and sell-stops are likely clustered below here.

    [USD, JPY]
    The JPY saw some weakness, fitting its usual inverse correlation to risk appetite as stocks rallied in Asia. USD-JPY logged a two-week a peak of 98.70. The pair has formed a bullish pennant pattern, and the break of resistance at 98.60 and 98.61 (the 50-day moving average) is a bullish development. Immediate resistance is at 98.70-98.73, which encompasses both Monday's peak and the 200-day moving average. Support comes in at 98.50 and 98.09-10.

    [GBP, USD]
    Sterling was firmer versus the euro but weaker against the dollar, caught in the cross-winds of a near half a point EUR-USD drop. The U.K. inflation report fuelled a brief sterling rally as we didn't get the expected dip in headline CPI in September, which remained unchanged from August's 2.7% level. Core CPI also rose to 2.2% from 2.0%, though benign PPI figures offset. Cable jumped to a peak of 1.6011 in the wake of the inflation report, but has seen tracked to a fresh low just under 1.5960. The price looks bearish from a technical perspective. Monday's low of 1.5952 is in view, below which we have last week's low at 1.5913, which is a four-week low. The broader pattern is a head-and-shoulders form, which suggests potential for a retreat to the 1.5700 area. General EUR underperformance, driven by EUR-USD, and which has come despite above-forecast German ZEW data, has aided EUR-GBP to a new low for the week of 0.8467. Support is marked at 0.8450.

    [USD, CHF]
    The safe haven CHF underperformed as risk appetite revived following fresh signs of progress in U.S. budget talks. USD-CHF spiked to a one-month peak of 0.9178. The breach of an inverse head-and-shoulder neckline at 0.9130 implies a retracement target to 0.9275. EUR-CHF smashed through the formerly stick area around of 1.2350 and logged a one-month peak of 1.2375. The CHF is likely to remain under pressures, assuming Washington reaches a budget deal ahead of Thursday's dent ceiling deadline. Strong resistance is marked at 1.2400, which proved a sticking point on multiple occasions in recent months.

    [USD, CAD]
    USD-CAD reversed some recent losses as the U.S. dollar rallied following fresh signs of progress in U.S. budget talks. The pair peaked at 1.0368. Selling interest is reported from 1.0380 to 1.0400. Price action is not likely to be a one-way street as the revival in risk appetite should prove to be supportive for the CAD, assuming that normal correlations will be seen. Good bid interest is reported into 1.0330, which markets trendline support, drawn from the Sep-19 low, and again at 1.0300. On the Canadian calendar today we have September existing home sales, expected to reveal a large y/y gain after weakness in September 2012. The September Teranet HPI is also due on today. Inflation data will be a highlight on Friday. We expect CPI to rise 0.1% in September, but slow to +1.0% y/y from +1.1% y/y in August. And the core is expected to rise 0.2%, firming to +1.4% y/y from +1.3% y/y in August, having rebounded from a +1.0% y/y cycle low in January. Overall, the data should reinforce the BoC's ample room to maintain historically accommodative rates as it awaits rotation in demand towards exports and investment.

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