2012-12-14 22:04 (UTC)
XE Market Analysis
The dollar was mixed in N.Y. trade on Friday, though thinned conditions resulted in a good deal of chap. The euro headed higher after tripping stops at 1.3120, eventually making it to 1.3173 highs. USD-JPY was steady ahead of next week's Japan elections, and the BoJ meeting where more tightening may be in the cards. The dollar eased a bit after softer U.S. CPI data, while risk sentiment held up through the morning at least, as industrial production beat expectations. Concerns over the cliff again weighed on markets in thin afternoon trade, as stocks turned negative.[EUR, USD]
EUR-USD took out buy stops over 1.3120, just above the London high, on its way to 1.3140 in morning trade. Volumes were reportedly light on the way up, and option backed offers were noted into the 1.3150 region. The pairing later moved to new trend highs of 1.3173, levels last seen on May 4. Thin markets allowed buyers to get the upper hand, though sellers reportedly returned into the 1.3170-80 level. Barrier options were taken out at 1.3150 on the way, apparently prompting buying from a U.K. name.[USD, JPY]
USD-JPY longs booked some profit, leaving it over 83.50 option expiries. Also hitting the market was a U.S. think tank report, which said the BoJ is likely to expand its asset purchase program at next week's monetary policy meeting, without waiting for the January review of its forecasts. This is broadly in line with Reuters sources over the last few sessions that tipped more stimulus. The think tank added that the BoJ may release details of a new bank lending facility. Further USD-JPY movement should remain limited, while buyers are tipped from 83.40 to 83.20, where U.S. funds were active on Thursday. Note also that yen call buying picked up for first time in quite a few sessions, with strikes trading from 83.00 to 82.50 in the 1-wk. Strikes over 84.00 traded via short dated risk reversals as longs in the underlying take advantage of a cheap hedge amid the lofty skew for yen puts over ATM.[GBP, USD]
GBP found support on dips amid speculation of central bank selling pressure via EUR-GBP. Cable ran into buyers at pullback lows just in front of 1.6110 and headed back to 1.6150 after the cross ran into good selling from 0.8125. Order flow was challenged by liquidity today, with traders reporting thin year-end type trading. Cable followed EUR-USD higher through the morning, taking out barrier options at 1,6175, before posting 1.6177 highs. The impact from S&P's U.K. rating outlook was shortlived as it is in line with Moody's and Fitch, but the U.K/German 10-year spread moved out to the widest levels in over a year at 53 bps, suggesting some are pricing in the prospect of rating action in early 2013.[USD, CHF]
USD-CHFremained under pressure as broader dollar moves keep risk skewed under the 0.9200 area, where a mixture of two-way order flow was widely tipped. Thin year-end markets will begin to influence price action, while appetite for further risk may be restrained as fiscal cliff negotiations drag on. Meanwhile, EUR-CHF marks time under 1.2100 after some swissy shorts reduced positions following yesterday's steady hand from the SNB. Buyers are noted into 1.2075 and 1.2060, which marks recent pullback lows, while offers have been lowered to the 1.2125 area ahead of near-term resistance from 1.2130.[USD, CAD]
USD-CAD edged up through yesterday's highs to reach 0.9860 in slow trade. The move higher was against the grain of stocks and commodities, which are holding up after U.S. industrial production and the positive lead out of China overnight. Light CAD$ supply went through after the 1.4% drop in Canada October manufacturing shipments. Meanwhile, news that S&P downgraded six Canadian financial institutions by a notch may have been an excuse to enter the market around 0.9825. It also looked like some accounts turned positions after 0.9820 stops held for the second session.