2012-12-05 21:36 (UTC)
XE Market Analysis
The dollar firmed through the morning session in N.Y. on Wednesday, as risk appetite faded following soft European data. Aside from the softer ADP employment report, U.S. data beat expectations, with factory orders and non-manufacturing ISM outcomes both topping forecasts. Concern over the fiscal cliff dampened risk taking interest, though later in the session, talk that some Republicans are set to explore "all options" on taxes and entitlements, appeared to lift equities to session highs. This ultimately weighed on the greenback in afternoon trade. As lawmakers apparently canceled Thursday's session though, equities came off their best levels. Thursday's U.S. calendar brings just weekly jobless claims, though with the official employment report due Friday, trade is likely to slow early tomorrow.[EUR, USD]
EUR-USD firmed modestly in N.Y. dealings, though maintained a relatviely narrow range. Most of the damage was done in European trade, following soft EU retail sales and services PMIs, which took the euro from 1.3125 to 1.30 60 at he N.Y. open. The euro stayed soft through the morning, though manage a rebound to 1.3190 as Wall Street turned higher. Sell stops are seen at 1.3020, with more at 1.2980, though for now look to be out of harm's way.[USD, JPY]
USD-JPY consolidated overnight gains into the open, leaving it close to 82.25 as ranges narrowed up in quiet European trade. Large option expiries at 82.00 and 82.20 are keeping the pair supported, though momentum is being contained by exporter offers from 82.40-50 and residual option barrier exposure from 82.90-00. USD-JPY found some support later in N.Y. on the back of talk that the LDP could win an outright majority in this month's election, eliminating the need for a coalition government. This could well give new PM Abe more power, increasing chances for extended easing moves. USD-JPY has made new highs near 82.40, up from around 82.05 at the open. While the move was modest, this latest talk may persist into the elections.[GBP, USD]
GBP is little changed despite a poor U.K. services PMI reading, which hit the lowest levels in nearly two years. Cable idled just in front of 1.6100, while EUR-GBP was close to 0.8140. There is limited appetite to take on positions ahead of the U.K. government's mid-year fiscal review. GBP risk may be on the downside amid a poor U.K. growth outlook and expectations that the Chancellor will push back the deficit cutting target due to lower than expected tax receipts. Cable bids are noted into 1.6070-80 and ahead of 1.6050, while hedging activity is noted around 1.6125-30. Cable reclaimed the 1.6100 handle in N.Y., though gains ran out of steam over 1.6110, likely due to aforementioned offers.[USD, CHF]
EUR-CHF remains supported close to 1.2150 following the decision by large Swiss banks to charge negative rates on CHF depos. Speculative names have unwound swissy longs in anticipation that capital inflows will drop off, though the improved tone in the eurozone has also added traction. Eurozone bond markets are in much better shape and this has helped to shore up the EUR downside over the last week. USD-CHF has also been stable despite last week's bearish break lower. After moving into 0.9250 it reached levels, where buyers saw good risk-reward and demand is layered to 0.9230 and into 0.9200-10.[USD, CAD]
USD-CAD traded back to 0.9930 after easing toward 0.9910 in London, though the firmer Wall Street open saw it pull back to 0.9920. Today marked the eighth consecutive session the pairing has held the 0.9900 level, while over the same time frame, the highs have generally be right around the 0.9950 region. Not much to go on, though should equities be able to add to their gains, we may see some more interest in taking out stops under the figure. USD-CAD later moved back to the bottom of its range as equities extend their gains. Dealers reported bids from 0.9910, though it remains to be seen if the market has enough ammo to grind through the buyers to expose the stops under the figure. Risk appetite returned some, largely as Wall Street reacted positively to reports the GOP may capitulate on some of their "cliff" tax stances.