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By XE Market Analysis October 24, 2013 7:22 am
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    XE Market Analysis: North America - Oct 24, 2013

    The dollar continued to underperform, which lifted EUR through 1.3800 barriers and left the CHF just shy of 0.8900. In early Europe short term accounts took their impetus from a better than expected China flash manufacturing PMI reading. However, early appetite to sell JPY ran out of stream as Eurozone PMI unexpectedly decline and later in the session U.K. CBI industrial trend also corrected the September surge in total orders. The fall in EUR and GBP was limited, but it enabled EUR-GBP to clear the 200-dma at 0.8534. USD-JPY moved across the 200-dma for the second consecutive session, but it has not closed below this level for a year and this should lead action across the FX majors in the next session or two.

    [EUR, USD]
    EUR-USD turned away from an intra-day highs near 1.3825 and headed back below 1.3800 on EUR-JPY selling by Japanese names. Manufacturing PMI data from France came in at a weaker than expected 49.4 outturn from 49.8 previously. German manufacturing came in at 51.5 in October from 51.1 in September, which was in line with expectations, but the composite reading eased to 53.6 from 52.6 from 53.2 previously as services declined. The data took the edge of EUR movement, but it should still sustain higher levels, based on the underlying dollar tone, which is still driving flows into a plethora of currencies as reserve managers and funds names diversify dollar holdings.

    [USD, JPY]
    JPY experienced choppy movement since the European session got underway. The pick up in China manufacturing PMI data fuelled early appetite for speculative positioning and a rise in the JPY crosses boosted USD-JPY out of 97.30 to 97.60. Fund names sold into strength, while Japanese banks resurfaced on top of EUR-JPY and it turned away from 134.80 back to 134.00. This weighed on USD-JPY, which is nearing an important juncture. USD-JPY has not closed under the 200-dma for a year and has persistently probed this level since it fell sharply during yesterday's Asia session. As a result of this risk short dated option flow accelerated in the last 24 hours. Demand for outright vol and JPY calls steepened the premium for downside strikes, which were concentrated over USD-JPY, EUR-JPY and AUD-JPY.

    [GBP, USD]
    GBP experienced a mixed reaction over U.K. CBI data. Cable was barely changed at 1.6175 following an early pullback from 1.6225. However, EUR-GBP steepened the recent bid and cleared the 200-dma at 0.8534. The overriding message from the CBI is that optimism amongst manufacturers is high, while demand for orders and output continues to improve, which underlines the recovery in economic activity that is evident in other U.K. releases over the last two to three months. However, on a monthly basis orders unexpectedly to -4, but from a lofty +9 outturn in September. We don't think this will trouble GBP bulls too much unless other U.K. data moderates from the recent firmness.

    [USD, CHF]
    The USD-CHF downside was limited by option related support. Movement under 0.8905 met very heavy dollar demand and the pair snapped back to the 0.8925 area. Short term market positioning and option defensive activity could see a further correction. However, EUR-CHF continues to struggle to sustain movement over 1.2300 after yesterday's move to 1.2282 lows and is meeting sellers on upticks. There are outstanding plain vanilla expiries rolling off at 1.2300 and 1.2280, which should keep ranges relatively narrow, though further USD-CHF weakness threatens to destabilise EUR-CHF.

    [USD, CAD]
    USD-CAD was underpinned throughout the overnight session following Wednesday's surge over 1.0375 amid the dovish BoC statement. The Bank dropped its mild tightening bias, eliminating the key line seen in September that "a gradual normalization of policy interest rates can also be expected.." The pairing blew through offers from 1.0350 on its way to the highs just shy of 1.0400. In Europe, it extended the rallied and extinguished 1.0400 barriers. Interbank names worked sell orders ahead of 1.0410, where large buy are reportedly. Setbacks were shallow overnight, with short term buyers keeping the pair underpinned from 1.0370.

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