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By XE Market Analysis September 18, 2013 6:17 am
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    XE Market Analysis: North America - Sep 18, 2013

    Activity was light over the course of the Asia and European session. However, there was some pre-Fed price chop. The standout flows went through JPY, which was boosted by option related flows via USD-JPY amid large expiries at 99.00 and 98.75, along with Middle Eastern account supply in EUR-JPY from 132.50 through 132.00. GBP saw buyers ahead of the BoE minutes and carved out fresh highs after there was no mention of further QE and none of the MPC expected a breach of the knockout clauses for forward guidance. Cable moved just over 1.5975, where option related flows reared their head. EUR was uneventful and traded a narrow range near 1.3350. The focus remains firmly on the Fed into the N.Y. open, where we expect a $10-15 bln cut in Treasury purchases. MBS levels should remain intact in deference to worrying deterioration in mortgage activity. But there's been sufficient improvement, especially the labor market, to give the Fed the opportunity to finally pull the taper cord on QE3.

    [EUR, USD]
    EUR-USD maintained a holding pattern near the top of the recent range. Large offers remained from 1.3380 up to 1.3400, where outstanding option barriers are tipped ahead of resistance at 1.3410. EUR drifted lower after the London open, but found support from 1.3345-50, where buyers were noted in Asia. Ahead of the FOMC outcome option expiries exerted an influence. There was heavy congestion at 1.3340, 1.3350, along with modest strikes at 1.3300 and 1.3370-75 and 1.3400. The bias for the EUR over the last week or so has been with the topside and this has kept the downside underpinned. If the Fed opts for taper-lite and dovish forward guidance this could potentially open up the topside and buy stops are noted from 1.3400-10.

    [USD, JPY]
    JPY firmed up amid option related activity and Middle Eastern account interest. USD-JPY drifted into 99.00 from 99.25 and tripped light stops on the way down to 98.85. Talk of large Japanese bids at 99.00 failed to materialise and this exacerbated the downturn. Large option expiries at 98.75 and 99.00 may have contributed to the heavier tone, along with a good sell order in EUR-JPY. The cross fell from just over 132.50 and triggered stops below 132.30 support and 132.00 on position unwinding. This is the second consecutive session that a Middle Eastern account has been selling EUR-JPY and could point to a move back towards 131.50. USD-JPY has also been pointing to lower levels for a few sessions, but failed to make a strong move in either direction ahead of the Fed policy outcome.

    [GBP, USD]
    GBP was supported after the BoE minutes. There were no surprises, but no member of the MPC called for further stimulus and this boosted Cable to new trend highs over 1.5970 and EUR-GBP headed into 0.8360. All nine of the MPC voted for unchanged policy and thought the current policy stance was appropriate. Not one of the members expected a breach of the knockout clauses for forward guidance. The sterling rise was expected to dampen inflation in the medium term, though oil price rises if sustained could be a short term boost. However, since the risk of Syria military action has faded so have oil prices. The latest BoE survey will also be welcomed by the MPC. Firms are broadly positive about forward guidance and confident that rates will stay low, which may explain why both investment and hiring intentions are edging higher.

    [USD, CHF]
    USD-CHF maintained a stable tone overnight and it still a relatively close distance from Tuesday's highs around 0.9280 and Monday's Asia Pacific opening levels just ahead of 0.9300. Early interest out of Asia today to buy dollars ran into light selling from 0.9270 and it drifted in a narrow trading range ahead of the Fed decision. EUR-CHF has also met decent offers that were lowered into 1.2380 after last week's rejection of resistance from 1.2415 and this is restricting USD-CHF's ability to rally.

    [USD, CAD]
    USD-CAD consolidated close to 1.0300 overnight. Yesterday's move into 1.0275 ran out of steam as sell stops at 1.0270 held and it drifted back towards 1.0300. Trade was listless overall as market participants await the FOMC outcome. Corporate bid interest is still anticipated on dips and this should continue in the very near-term. Sellers have lowered offers slightly to the 1.0320 area and more interest is tipped at 1.0330 and 1.0340-50.

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