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By XE Market Analysis September 16, 2013 6:33 am
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    XE Market Analysis: North America - Sep 16, 2013

    Dollar losses dominated the Asia session in response to news that Larry Summers withdrew his candidacy for Fed Chairman. The dollar gapped lower at the open and remained under pressure throughout the session, which left EUR over 1.3350, Cable above 1.5950 and USD-JPY under 99.00. Consolidation set in over the course of the European morning, though lower U.S. yields kept the dollar on the lower side ahead of the North American open. The market welcomed the deal between Russia and the U.S., which will see Syrian chemical weapons destroyed by the middle of 2014. Market participants also digested the potential implications for next weekend's German election after a poor showing for the FDP in yesterday's Bavarian election. Reuters ran an exclusive that said Germany is working on a compromise for banking union that could avoid a change in EU law.

    [EUR, USD]
    EUR-USD registered a mild correction following a strong overnight rally. The dollar fell sharply in Asia, though volumes were compromised by the lack of Tokyo market participants due to a market holiday. EUR traded at 1.3382 highs in early Asia Pacific trade and then eased off initially to the 1.3355 area in Asia and then to 1.3340 in quiet European trade. An Asian central bank was noted on top in Asia and there were fast month accounts that faded upticks. Into the Fed meeting on Wednesday the dollar may find a modicum of support, though policy tapering of $10-15 bln is priced in, along with dovish forward guidance. Intra-day, the downturn in U.S. yields could reduce appetite for the dollar. EUR buyers are seen into 1.3330 and 1.3320-25 and 1.3300-10, which had provided previous resistance for the majority of last week.

    [USD, JPY]
    USD-JPY consolidated losses under 99.00. So far, the overnight move into 98.45 and early European movement into 98.70 have been used as buying opportunities. The dollar is broadly weaker, but for JPY there is likely to be a pick up in yen-cross demand if risk appetite holds up. EUR-JPY is marking time close to 132.00, which is slightly higher than Asian session lows, while AUD-JPY is firmer intra-day near 92.50. USD-JPY's correction from over 100.00 is likely to encourage selling pressure on upticks intra-day and the downside could come under pressure until Tokyo players return from the long weekend on Tuesday. Good bids are layered into 98.30, which is the top of the Ichimoku cloud, and towards the 98.00-10 area.

    [GBP, USD]
    GBP consolidated gains. Cable traded as high as 1.5958 in Asia after it jumped from 1.5880 on news that Larry Summers withdrew his candidacy as Fed Chairman. Further gains in Cable were stymied by strong offers related to large option barriers at 1.6000. EUR-GBP also met good support following Friday's move to 0.8358 lows. On the downside there are outstanding option barriers at 0.8350 and a large technical support level at 0.8333, which is a popular level for corporates as this represents 1.2000 on the GBP-EUR reciprocal rate. GBP may move inside a narrow range until Wednesday's BoE minutes, though in light of comments from BoE Carney and co last week there may not be anything new for markets.

    [USD, CHF]
    CHF is trading on a stable footing, leaving EUR-CHF close to 1.2360 and USD-CHF near 0.9250. The CHF was forced higher overnight as news on the candidacy for Fed Chairman weighed heavily on USD-CHF. With Larry Summers out of the race the market is optimistic that the next Fed Chairman will favour slow and gradual policy tapering. USD-CHF dropped from 0.9300 to 0.9235, though is beginning to find light buyers that are positioning ahead of support from 0.9220 to 0.9200. EUR-CHF hit 1.2340 and then recovered amid general EUR firmness, as well as a rise in risk appetite. However, we still think the downside in the CHF will remain limited into Wednesday's Fed policy outcome and then Thursday's SNB meeting.

    [USD, CAD]
    USD-CAD slumped from 1.0350 in Asia and moved into 1.0300 by the time the European session got underway. Leverage names and hot money flows into risk-related currencies tipped USD-CAD into the 1.0285 region, which triggered stop reverse positions. The near-term bias is on a test of 1.0250 and if this level gives way then the 200-dma lower down is a potential target. There were real money buyers around 1.0285 and profit taking set in, which helped USD-CAD back into 1.0300 ahead of the North American open.

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