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By XE Market Analysis September 27, 2013 7:38 am
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    XE Market Analysis: North America - Sep 27, 2013

    Ranges were narrow among the FX majors. EUR-USD remained anchored around 1.3500, with the euro little impacted by solid Eurozone confidence, aside from a modest lift, while sterling spiked following remarks from BoE Governor Carney, who said that there was no case for further QE in an improving economy, though the currency's upward momentum evaporated pretty quickly. EUR-CHF logged a three-month low of 1.2261, extending the moderate bear trend that's been in play over the last two weeks, encouraged by a much stronger than expected KOF leading indicator. The JPY posted modest across-the-board gains following news of the fastest acceleration in CPI inflation in nearly five years, a sign that re-inflationary policies are taking effect.

    [EUR, USD]
    EUR-has remained anchored around 1.3500 as the market continued to consolidate. Trading has been tethered around this level for several sessions now. While ECB policymakers have been on a march to stress that it remains committed to a dovish policy course, and the possible re-use of LTRO, data have been strong, with the Eurozone ESI confidence coming in much stronger than expected at 69.0 in September. There is also talk in the market of month-end related demand for dollars. The week's low at 1.3460-61 provides an initial support level, ahead of 1.3450, where a cluster of bids are reported. Resistance is marked at 1.3500 and 1.3525-26, and stronger resistance at 1.3550. Germany's SPD is said to be ready to back exploratory coalition talks, which is a first step towards a grand coalition in Germany, which will likely also mean a somewhat less austerity focused German policy at a European level.

    [USD, JPY]
    The JPY posted modest across-the-board gains following news of the fastest acceleration in CPI inflation in nearly five years, a sign that re-inflationary policies are taking effect. USD-JPY remains in a moderately bearish trend, with both the 50- and 200-day moving averages being challenged at 98.55 and 98.47, respectively. We look for a move to 98.27, the Wednesday low point, and sub-98.00 levels beyond that. Japan's core CPI rose 0.8% y/y in August, stronger than expected following the 0.7% core gain in July, the fourth straight month of annual growth, adding to the evidence that the BoJ's ongoing effort to end deflation is meeting with some success. This backdrop should be yen support as it implies a less certain future for yen funded carry trades. Japan's finance minister, Aso, meanwhile, said he was not considering a cut in corporate taxes, negating the remarks of PM Abe yesterday that a cut was being considered and showing his determination for fiscal prudence.

    [GBP, USD]
    GBP spiked as BoE Carney's said there is no case for more QE, a clear sign that the central bank its (finally) taking a less dovish stance, albeit within the context of its dovish forward guidance message. Sterling had taken a hit following the unexpected downward revision to y/y U.K. Q2 GDP data yesterday., though the data is backward looking and survey evidence are strongly pointing to an acceleration in GDP growth in Q3, to 1.0% q/q, we anticipate, from 0.7% in Q2. The Sep-18 peak of 1.6113 in Cable, which is the highest level seen since January, provides a natural target for the bullish market. Support is pegged at 1.6040-50, ahead of 1.6000.

    [USD, CHF]
    The cross has been trending lower over the last two weeks, having fallen from 1.2400-plus levels, and took and extra step down in falling to a low of 1.2264, the lowest level since June. The EUR had closed below the 200-day moving average earlier in the week, and this seemed to have portended the fresh losses. The mixed fortunes of global stock markets in recent sessions had helped support the safe-haven CHF. However, the speculative part of the market will be reluctant to establish short positions at sub-1.2300 levels in light of the persistent downside failures under this level since April. SNB's Jordan, earlier this week, reminded markets that the central bank remains fully committed to the 1.2000 limit peg, despite the backdrop of improving Swiss fundamentals.

    [USD, CAD]
    USD-CAD has settled lower after hitting a 12-day peak on Thursday, of 1.0340, following the breaking of the 1.0300 level earlier in the week. The 1.3000 level is now a near-term support, along with the 200-day moving average at 1.0305. Resistance is pegged at 1.0315-25, which encompasses the presently position of the 20-day moving average. The momentum of the rally in place from last week's sub-1.0200 lows has ebbed, and we would expect to see some consolidation. Canada's data calendar remains light through the end of the week, leaving the focus on U.S. indicators, including expected upward revision to Q2 GDP and jobless claims.

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