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By XE Market Analysis October 15, 2013 2:51 am
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    XE Market Analysis: Europe - Oct 15, 2013

    There wasn't a big reaction in currency markets during the pre-European open Asia session to the news of "tremendous progress," in the words of Majority Leader Harry Reid, in negotiations with regard to a deal to suspend the U.S. debt ceiling through Feb-7 and fund the government through Jan-15. EUR-USD was settled at 1.3565 bid just ahead of the London open today, about 20 pips below yesterday's London closing level. The JPY saw some weakness, fitting its usual inverse correlation to risk appetite as stocks rallied in Asia, with USD-JPY settled about 30 pips up on Monday's London closing level of 98.11, having logged a peak at 98.70. The high beta Australian dollar outperformed, matching the outperformance of the Australian stock market today, which were aided by RBA minutes to the Oct-1 policy meeting that showed policymakers were still considering that a further loosening in monetary policy. AUD-USD was up about 80 pips at 0.9533. The Aussie breached the Sep-19 peak and logged a four-month peak of 0.9538.

    [EUR, USD]
    EUR-USD was settled at 1.3565 bid just ahead of the London open today, about 20 pips below yesterday's London closing level. The rejection of 1.3600 yesterday maintained the pair in a broad consolidation pattern. Resistance is marked at 1.3600 and 1.3610. The 20-day moving average is at 1.3546, which coincided with Monday's low. Bid interest is reported just under here. The German ZEW economic sentiment for October is up today, which is expected to have risen to 50 (median 51) from 49.6 in the previous month.

    [USD, JPY]
    The JPY saw some weakness, fitting its usual inverse correlation to risk appetite as stocks rallied in Asia, with USD-JPY settled about 30 pips up on Monday's London closing level of 98.11, having logged a peak at 98.70. The pair is consolidation in what appears to be a bullish pennant formation. Resistance is marked 98.61 (the 50-day moving average), and 98.70-98.73, which encompasses both Monday's peak and the 200-day moving average. Support comes in at 98.09-10.

    [GBP, USD]
    Both Cable and EUR-GBP have remained on the stable to firmer side. Cable traded over 1.6000 yesterday amid pick up in dollar selling. EUR-GBP was underpinned by general EUR-cross firmness, with EUR-CHF above 1.2300 still and EUR-JPY also consolidating near 133.30. EUR-GBP traded a tight range near 0.8480 after it rejected levels over 0.8500 last week, but is pointing to higher levels after heavy corporate related demand last week. Potential M&A related flows could boost GBP if a deal to sell to RBS's arm of Citizen's goes through. The Sunday Times said Toronto Dominion could be interested in a deal that may be worth as much as GBP 8 bln.

    [USD, CHF]
    EUR-CHF has been unable to sustain higher levels, despite the progress in U.S. debt negotiations. After breaking the top of the recent range near 1.2350 it topped out and turned lower on Monday. USD-CHF dropped to 0.9065 from over 0.9100 as European accounts cut back dollar exposure. Support at 0.9050-60 held the downside in the interim, but the outlook is fragile in light of the looming debt ceiling deadline.

    [USD, CAD]
    USD-CAD has come under pressure amid a moderately softer U.S. dollar environment. Good bid interest is reported into 1.0330, which markets trendline support, drawn from the Sep-19 low, and again at 1.0300. Selling interest is reported from 1.0380 to 1.0400. On the Canadian calendar today we have September existing home sales, expected to reveal a large y/y gain after weakness in September 2012. The September Teranet HPI is also due on today. Inflation data will be a highlight on Friday. We expect CPI to rise 0.1% in September, but slow to +1.0% y/y from +1.1% y/y in August. And the core is expected to rise 0.2%, firming to +1.4% y/y from +1.3% y/y in August, having rebounded from a +1.0% y/y cycle low in January. Overall, the data should reinforce the BoC's ample room to maintain historically accommodative rates as it awaits rotation in demand towards exports and investment.

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