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By XE Market Analysis September 3, 2013 7:24 am
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    XE Market Analysis: North America - Sep 03, 2013

    The dollar traded on the firmer side overall during the European morning. However, price action turned choppy in the latter part of the morning session as Russian news picked up reports of a missile launch in the Mediterranean. It was initially denied by various officials, but Israel later confirmed that it had carried out a joint missile test with the U.S. The dollar, yen and swissy were the most sensitive to the news. USD-JPY dipped to 99.17 lows and USD-CHF gave back early gains to trade into 0.9345. It did not do much damage to the underlying trend though as both dollar pairings enter the N.Y. open at firm levels. Sentiment was positive in the last session or two after good China PMI data on the weekend, while Eurozone PMI numbers were also encouraging and U.K. data continues to outperform significantly. In today's European morning the highlight was the jump in U.K. construction PMI and Swiss Q2 GDP came in on the stronger side.

    [EUR, USD]
    EUR-USD extended losses, largely due to on-going dollar demand. This was a theme that developed late last week and looks set to continue ahead of Thursday's ECB policy decision. EUR is trading around levels where good technical support is likely to emerge. The 200-dma is noted at 1.3145 and the 100-dma is noted at 1.3135 today. M&A news could encourage EUR demand on dips after Microsoft announced it will buy Nokia's mobile phone business and patents for EUR 5.44 bln in an all cash deal. EUR flows have been fairly light so far this week. There was residual Asian supply overnight, but activity has dropped off as emerging market currencies stabilised. EUR-GBP and EUR-AUD heaviness is being absorbed by a firmer tone in EUR-JPY and EUR-CHF as macro leads were offset by risk appetite.

    [USD, JPY]
    USD-JPY consolidated overnight gains, leaving it close to the 99.70 area. Japan banks said that most of the supply on top of USD-JPY is option related rather than exporter hedging. Exporter activity has been fairly light in anticipation of an extended USD-JPY move higher. There have been hopes for a sustained period of USD-JPY strength for some time. However, price action has been quite volatile since it topped out at 103.73 on May-22. Option activity picked up on the move higher with demand for 100 strikes noted over the next week or so. Long positioning is based on the premise that the dollar will rise into the FOMC meeting in the middle of the month amid expectations of Fed tapering.

    [GBP, USD]
    Cable broke key levels on more U.K. data strength. U.K. construction PMI jumped to 59.1 in August from 57.0 previously and follows yesterday's surge in U.K. manufacturing PMI. Cable rose from the 1.5570 area and briefly cleared 1.5600 for the first time in just over a week. EUR-GBP extinguished 0.8450 barriers to trade at fresh trend lows. The data reinforces expectations of a sustained recovery in the U.K., but will add to doubts over the BoE's policy stance. Further GBP gains may be limited ahead of U.K. services sector PMI, which is due tomorrow. Option expiries could see ranges tighten up as we approach the European afternoon. Cable maturities lie at 1.5550 and 1.5500 and EUR-GBP strikes are seen at 0.8450 and 0.8460.

    [USD, CHF]
    EUR-CHF is stable around the 1.2330 after it edged out a modest rally on Monday amid a pick up in risk appetite. The immediate risk of military action against Syria faded further as U.S. President Obama also decided to put the issue to vote in Congress, which will reconvene on the September 9th. Aiding the better tone was encouraging manufacturing PMI data from China, the Eurozone and the U.K.. Upward momentum was a bit slow over 1.2330 due to a congestion of offers up to 1.2350. USD-CHF is buoyant around 0.9350 on underlying dollar strength and eyes a test of the 0.9400 region.

    [USD, CAD]
    USD-CAD held firm overnight after it rallied out of 1.0520 to 1.0550 during Monday's session. A rise in risk appetite did not really impact the dollar pairing. Instead, short term accounts keyed off the underlying technical backdrop and dollar strength. From a technical perspective there is still scope for a sustained move on higher levels, with early July highs at 1.0609 a near-term target. There are still very good offers into the 1.0570 area related to outstanding option structures between 1.0575 and 1.0600. Buyers are noted now from the 1.0520-30 area and through 1.0500.

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