2012-11-21 07:32 (UTC)
XE Market Analysis
Short term accounts moved to dollar safety after European finance ministers and the IMF were unable to reach a deal on Greece at the eurogroup meeting. They will meet on Monday and in the interim will work to resolve the remaining disagreements, said Juncker. Adding to deteriorating risk backdrop was another fall in Japanese exports by 6.5% y/y, which was slightly worse than expected and reinforced yen selling, which together with the dollar bid tone lifted USD-JPY within a short distance of 82.00 barriers. During Tuesday's N.Y. session, Fed Chairman Bernanke indicated Fed would continue to buy MBS and Treasuries, but warned that the Fed did not have the tools to fully offset the impact if the economy goes over the fiscal cliff.[EUR, USD]
EUR-USD slumped from the 1.2820 area to 1.2737 lows in reaction to the statement out of the eurogroup meeting, where leaders failed to reach a deal on Greece due to differences over how to bring down Greece's debt to GDP from 190% for 2013 to 120%. Ministers will meet again next Monday, but in the meantime will work on the issues in order that an agreement can be reached next week. The EUR move under 1.2750 cleared out quite a lot of short term long positions and with U.S. Thanksgiving upon us we think that dollar safety may be favoured. Intra-day accounts are likely to sell rallies with a view to testing 1.2700 bids. Bids at 1.2650-60 still represents a near-term pivot point for range traders.[USD, JPY]
USD-JPY continued to hold on to a bid tone amid a combination of dollar supportive flows and persistent yen weakness. It traded within a short distance of 82.00 barriers after buying interest went through from the 81.65 area. EUR-JPY movement caught out specs though. The cross ramped up to 105.07 from the 104.60 area in very early Asia, which took out option triggers, but plunged to 104.10 on the eurozone headlines. The pullback weighed on AUD-JPY, which fell back from just over 85.00 towards 84.50 and GBP-JPY eased from 130.55 to just in front of 130.00. Another drop in Japanese exports indicated just how important yen levels are for the Japanese economy and specs are still gambling on radical policy changes ahead, with Shirakawa's tenure as BoJ Governor set to end next March, which could dovetail a LDP-led government. USD-JPY longs eye large buy stops just above 82.00.[GBP, USD]
Cable continues to trade close to 1.5900, but met selling pressure from positional traders layering offers to 1.5950 since Monday, which should keep the topside in check, along with last week's dovish commentary from the BoE. Positions are tight ahead of the BoE minutes and Thursday's U.S. Thanksgiving holiday. The BoE is expected to result in a ananimous vote for a steady hand, which could fuel light sterling demand due to market positioning, though downside risk remains. Any dissenters could tip Cable back towards 1.5825 and barriers at 1.5800, but note that a supportive risk backdrop will work against the dollar tone in the short term. However, as the week progresses funds will naturally flow towards the dollar as positions are squared up into the U.S. holiday.[USD, CHF]
USD-CHF found support around 0.9400 and moved back over 0.9450 after risk aversion picked up after the eurogroup was unable to reach an agreement on Greece. We also think that in the near-term that movement into 0.9400 and below offered good risk reward for longs. SNB reserve management flows and the risk backdrop should continue to support on dips, while sellers are likely from the 0.9500 area, where profit taking activity will emerge from range players.[USD, CAD]
USD-CAD extended the move higher and made it back to the 0.9990-00 area after risk appetite deteriorated on eurozone news. Topside movement from here may be slow as a number of offers were reset over parity after failure to sustain the recent move over 1.0050. However, in the bigger picture, as the markets warily price in resolution to the U.S. fiscal cliff, CAD weakness may be fleeting. Movement into 0.9950-60 should meet corporate support, which lies ahead of sell stops below.