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By XE Market Analysis September 23, 2013 6:39 am
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    XE Market Analysis: North America - Sep 23, 2013

    The FX majors were narrowly mixed in quiet trade. EUR-USD received a mild boost from Merkel's German election victory, though difficult talks are anticipated in order to build a coalition. EUR moved into 1.3350 and then eased just ahead of 1.3500. Eurozone flash PMI data was mixed. The pace of manufacturing slowed, while the services sector pushed ahead. The market shrugged off the China flash manufacturing PMI, which reach a six-month high. The uncertain U.S. outlook left a subdued market tone and kept JPY supported, while USD consolidation continued. After last week's post-Fed data there is uncertainty over a potential October taper, though the debt ceiling is a risk. The WSJ speculated that the nomination for the next Fed Chairperson could be imminent after Vice Chairwoman Yellen reportedly cancelled a scheduled October-1 speech.

    [EUR, USD]
    EUR-USD was capped into 1.3550 amid a congestion of sell-orders into 1.3570 and barriers at 1.3600. Short term accounts reacted to the Eurozone PMI releases, which were mixed on the national readings, while the composite reading rose to 5.1 in September from 51.5 previously. Manufacturing readings were weaker than expected, but the services sector beat expectations. EUR-USD headed back into the 1.3510 area, though dip buying should prevail into 1.3500 and below. There is support noted into 1.3470 and very strong orders just ahead of 1.3450. Potential EUR selling this week could go through though against GBP amid talk of more flows related to EU farming subsidies. One French name has put out a sell recommendation based on this risk and U.K. account selling has gone through.

    [USD, JPY]
    JPY is trading on a firmer footing. Activity was light overnight as Japanese markets were closed for Autumn Equinox. Appetite to put on leverage positions ran its course late last week as the uncertain U.S. outlook dampened sentiment. A run of better U.S. data after the unchanged Fed policy stance confused the Fed outlook further, while a protracted U.S. debt ceiling impasse is also another potential risk into the next Fed meeting in October. USD-JPY topped out into 99.70 late last week and fell from 99.35 to 98.90 today, which came in tandem with EUR-JPY's correction from 134.50 to 133.60 after 135.00 held on Thursday. Fading rallies in USD-JPY and EUR-JPY is likely in the near-term.

    [GBP, USD]
    Cable benefited on EUR-GBP flows, which carried it from 1.6015 just over 1.6050. In Asia, a brief move under 1.6000 met a reserve manager, which put a floor in place and kept near-term bias with the topside. The recent upturn in GBP has seen a significant reduction in long-term short positions. The latest IMM data, which detailed positioning up to last Tuesday, revealed that shorts were slashed to 6,310 from 38,166 in the previous week. We also suspect that the subsequent post-Fed moves left market positioning at neutral levels. This could explain why after the modest correction from over 1.6150 that Cable is currently experiencing sideways movement near 1.6000. However, GBP will remain sensitive to near-term economic data releases, which includes CBI retail sales on Wednesday and the final Q2 GDP reading on Thursday.

    [USD, CHF]
    EUR-CHF found support from the Asia Pacific open ahead of the 200-dma near 1.2300. EUR-CHF has not sustained a move under the 200-dma since early April and previous moves lower met long-term buyers and this is limiting the downside today. Eurozone PMI data releases have been mixed so far, but still point to stabilisation in the euro-area. However, appetite for leverage positions is fairly low as stocks experience limited upside. Uncertainty regarding the U.S. outlook is weighing on sentiment and this could support CHF on dips. USD-CHF remains heavy just ahead of 0.9100 on Fed uncertainty and U.S. debt ceiling risk, but CHF-JPY is beginning to give back some of last week's gains amid unwinding of some short-yen positions.

    [USD, CAD]
    USD-CAD traded in a narrow range either side of the 1.0300 level overnight. USD-CAD directional bias is limited close to this region. After it rebounded out of 1.0180 last week momentum on the topside has started to drop off. Sell interest that was original parked near 1.0400 was lowered last week after the fallout from the Fed meeting and 1.0330-50 offers should cap now. Flows were fairly light from late Asia and over the course of the European morning. There was talk from the London market that an Asian reserve manager was a persistent feature on the topside, which raised speculation of outstanding option maturities near 1.0300. There was little impetus from risk assets, which were mildly weaker. Oil and gold eased, along with global equity markets.

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