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By XE Market Analysis October 25, 2013 6:44 am
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    XE Market Analysis: North America - Oct 25, 2013

    The dollar hit new trend lows in late Asia, but then experienced a light recovery over the European morning. EUR made several attempts on the 1.3830 area, but an unexpected drop in the German Ifo and option price congestion triggered a move back below 1.3800. Cable edged higher after the as-expected U.K. Q3 GDP outturn, but met technical selling ahead of the recent top near 1.6250-60 and ebbed to 1.6185 lows. This was the catalyst for a USD-JPY move out of 96.90 to 97.30 and USD-CHF also experienced good local name demand from the 0.8900 area. After the persistent dollar selling of late it wasn't surprising to see a very minor correction take place.

    [EUR, USD]
    EUR-USD dipped after German Ifo unexpectedly fell in October, while the expectations reading also dropped sharply. The number cut into the EUR topside and it pulled back from the 1.3830 area and eventually moved back below 1.3800 as light dollar profit taking went through. Movement via EUR-USD was quite slow overall as intra-day demand was absorbed by option related selling. As well as outstanding 1.3850 barriers there are also plain vanilla expiries rolling off at 1.3800, 1.3820 and 1.3850, which added to price congestion on the topside.

    [USD, JPY]
    USD-JPY losses under 97.00 were limited due to Japanese order book flow. However, the close below the 200-dma on Thursday fuelled U.S. fund selling overnight and a further reduction of short-yen positions by Japanese retail accounts. The option expiry diary should be supportive for USD-JPY during the European morning, with strikes close to current levels at 97.00, 96.90 and 96.80. However, movement higher up should encourage intra-day dollar sellers from 97.30 to 97.50, with the technical backdrop skewed to a push on good support at 96.50, which is protecting sell stops below.

    [GBP, USD]
    GBP edged higher after U.K. Q3 GDP came in right on expectations. GDP rose 0.80% q/q and 1.50% y/y. A few intra-day accounts that few long into the release booked profit and it dipped into 1.6185 and then pushed back towards the 1.6240 region. However, topside movement stalled ahead 1.6250 for the third consecutive occasion on the week and longs bailed and it headed back to 1.6185, which the catalyst for dollar correction action elsewhere.

    [USD, CHF]
    USD-CHF has found a modicum of support on dips since 0.8900 barriers were flushed out on Thursday. A Swiss name bought from just under 0.8900 from early Europe and a short covering rally extended to 0.8940. There are reportedly long-term corporate flows that are limiting the downside, along with residual option related activity. However, the underlying tone is still skewed to further downside pressure due to underlying interest to sell the dollar amid the Fed policy outlook. EUR-CHF, which has been very sensitive to USD-CHF moves, has posted a modest recovery from 1.2300 to 1.2335 as a result of the dollar flows today.

    [USD, CAD]
    USD-CAD has held firm since it cleared 1.0400 barriers and extended to 1.0440. Good volumes were reported on the way up, though the dovish BoC statement on Wednesday, and Thursday's softer U.S. and EU PMI's reinforced the underlying tone. During the European morning buyers were steady from the 1.0410 area and a modest USD recovery also aided the upturn, which eventually saw 1.0450 barrier fall. There is no much on the topside now in respect of outstanding orders until the 1.0490 peak from early September and then 1.0500 barriers.

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