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By XE Market Analysis September 24, 2013 6:52 am
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    XE Market Analysis: North America - Sep 24, 2013

    European markets continued to trade on the quieter side. Appetite for speculative positioning remained low as stocks struggled, which left CHF and JPY supported on dips. EUR-JPY posted an early rally on M&A news, but was net unchanged ahead of the N.Y. open as EUR-USD dipped into 1.3475. ECB's Nowotny said he did not see the need for addition liquidity now, but there are increasing expectations that the ECB could provide further liquidity later this year as banks continue to repay previous funds. GBP experienced mild profit taking, which tipped Cable just under 1.6000 and supported EUR-GBP on dips. There was healthy U.K. mortgage approval data and positive lending for the first time in four years.

    [EUR, USD]
    EUR-USD held tight ranges despite a pick up in the German Ifo reading to 107.7 in September from 107.5 previously. The number was slightly weaker than forecast, which more than likely limited market impact. EUR-USD edged out intra-day highs near 1.3520 and then headed back below 1.3500. There was more ECB policy rhetoric. Nowotny suggested that LTRO was being discussed and said it is important to show what it has in the way of instruments, which are flexible. Nowotny said unconventional policy remained important as long as it remained in troubled waters. There are growing expectations that the ECB could offer another tender later this year if money market rates rise further. EUR looks poised to retrace post-Fed moves and we look for an eventual move to 1.3400-1.3380.

    [USD, JPY]
    USD-JPY was aided by EUR-JPY demand and option flows. It rebounded back over 99.00 from 98.75 in early Europe on cross-flows related to M&A news. Quiet trading conditions exacerbated the upturn and the flows were speculative in nature with the mooted Lixil-Grohe talks not a done deal as yet. If agreed it is expected to come in around the EUR 3 bln mark. On the expiry diary strikes at 99.00 are reportedly in excess of $700 mln and there are $500 mln at 99.40. The dollar pairing has reached 99.17 rally highs, but it back peddled on cross-selling.

    [GBP, USD]
    GBP headed lower on repositioning. EUR-GBP benefited from underlying EUR support and a lack of fresh supply, which carried it up from the 0.8425 region towards 0.8450. There was traction for GBP supply through GBP-JPY, which pulled back from the 159.00 region early on to 158.30 and came in tandem with Cable's move through 1.6000. Cable has performed well for several weeks, but since last Thursday's U.K. retail sales miss it has moved into a sideways trading pattern. Cable should still meet buying interest on dips, though signs that the U.K. economic recovery is moderating would see a further reduction in some of the excesses of recent weeks.

    [USD, CHF]
    EUR-CHF is trading on the heavy side after it posted a negative close under the 200-dma on Monday. However, losses under 1.2300 were limited to 1.2275-80 and tight ranges prevailed near 1.2285-90 in Asia. Since the European session got underway local names lifted it back over 1.230 and macro funds used the break of the 200-dma as a buying opportunity on Monday as bids at 1.2275 and 1.2265 held. These flows should continue to support intra-day, while prop names may also see value here as EUR-CHF has not sustained movement under the 200-dma since April. Meanwhile, USD-CHF is also underpinned near 0.9100 as support held between 0.9075 and 0.9050 on Monday.

    [USD, CAD]
    USD-CAD made little progress in either direction in the last 24 hours. After pressing a bit higher early Monday it drifted from 1.0310 back to 1.0275. Two way flows have narrowed up and this is likely to lead to more rangebound action. Offers are noted at 1.0330-50 and a layer of bids are reported at 1.0270. There was little data to drive direction, though softer oil prices and a downturn in stocks could support USD-CAD to a degree. The focus will come from Canadian retail sales data in early North American trade.

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