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By XE Market Analysis October 30, 2013 6:36 am
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    XE Market Analysis: North America - Oct 30, 2013

    The dollar maintained a supportive tone for the most part amid month-end related activity ahead of today's FOMC outcome, which is likely to be uneventful in respect of policy developments. However, market participants will be interested to see how the Fed views the U.S. government shutdown and the potential impact on Q4 growth. In Europe, EUR and GBP found support on dips and posted modest gains above 1.3750 and 1.6050, respectively. Japan September industrial output was released overnight, which was slightly below expectations at 1.5% m/m. In Europe, Eurozone confidence data was stronger than expected at 97.8 from 96.9 previously. The KOF leading indicator also hit a new cycle high of 1.72 in October from 1.54 previously. Meanwhile, China overnight and 7-day repo rates hit the highest levels in average weighted terms since June, which reinforced expectations that the PBoC is looking to curb the credit bubble.

    [EUR, USD]
    EUR-USD burst higher as good Asia account demand emerged ahead of 1.3730 bids. The negative overhang on the daily chart drew in early sellers, but the lack of downside progress encouraged shorts to cover amid Asian backed support and it traded just shy of 1.3770. We think intra-day accounts will try to limit gains while 1.3800 is intact. However, there is conjecture that EUR-USD could still trade higher in the coming weeks amid the Fed policy outlook and potential for Eurozone bank repatriation ahead of the ECB's asset quality review early next year. Ahead of next week's ECB meeting, market participants will scrutinise any comments on the EUR after Nowotny played down currency strength yesterday.

    [USD, JPY]
    USD-JPY maintained a bid tone after a strong rally on Tuesday. In Asia there was good Japanese importer demand over the fix and a reduction by stale short positions kept the pair underpinned on pullbacks into 98.10. The topside was capped by offers from 98.30 and these held the topside in Europe ahead of good orders reportedly into the 98.50 region. Price action may be quite slow into the N.Y. morning amid very large option expiries between 98.00 and 98.50. The JPY crosses were in a holding pattern after benefiting on bargain hunting during yesterday's European and N.Y. session. EUR-JPY consolidated close to 135.00, AUD-JPY held above 93.00 and GBP-JPY was steady above 157.50.

    [GBP, USD]
    Cable posted a modest rally back into 1.6070 on good supportive bids from U.K. names at the lows. Corporate flows have picked amid the recent GBP correction, while EUR-GBP has also backed away from 0.8585 on option protection sellers ahead of 0.8600 barriers. The downturn in GBP reflects a moderation by excessive longs as some U.K. data showed signs of slowing down after the impressive period of upside surprises. A moderation in U.K. activity would offer justification for BoE's forward policy guidance, which was scrutinised after a period of very strong data releases. BoE Governor Carney said overnight that the 7% unemployment threshold was the right time to adjust policy and reiterated that it would not tighten until the recovery is sustained. Carney added that the recovery was being by the housing market.

    [USD, CHF]
    The CHF is still on the softer side, with Swiss data only fueling a small blip down in USD-CHF and EUR-CHF. USD-CHF is attempting to consolidate Tuesday's gains, which came on broad dollar demand. Recently, dollar rallies have been sold into amid the Fed policy outlook, but a steady hand well into 2014 is now priced in and the dollar downturn may be losing momentum. A sustained USD-CHF move above 0.9000 would dampen the long-term dollar trend. USD-CHF's move over 0.9000 Tuesday helped EUR-CHF to 1.2370, where it traded in early Europe today. Follow through has been lacking due to profit take orders into October-15 highs at 1.2370 and good order flow from 1.2380 to 1.2400.

    [USD, CAD]
    USD-CAD consolidated recent gains, leaving it just ahead of 1.0450 during the overnight session. The pairing edged out fresh trend highs just above 1.0470 in Asia amid dollar strength and sell-interest via the commodity bloc currencies. Further gains were stymied by option related flows amid outstanding barriers at 1.0500, along with domestic sellers that are reportedly working corporate orders. There was also a tentative downturn in the dollar over the course of the European morning, which also added some weight and left USD-CAD over bids seen from 1.0450 to 1.0430.

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