2013-01-10 11:18 (UTC)
XE Market Analysis
The dollar fell in Europe ahead of the BoE and ECB policy decisions. Market sentiment was positive after a surge in China December trade to a surplus of $31.6 bln from $19.6 bln in November, which included a sharp jump in exports and better than expected imports. EUR rallied over 1.3100 and Cable held 1.6000 and traded back over 1.6050 on sovereign demand out of Asia and the Middle East. Good auction results in Spain and Italy led to further spread narrowing, while a rebound in French production and business confidence also added to the positive theme. Directional bias into the European afternoon will come from the ECB press conference, while the North American calendar picks up, with U.S. weekly jobless claims, wholesale sales and JOLTS reports due. In Canada, BoC Macklem speaks and building permits are due.[EUR, USD]
EUR-USD rallied out of 1.3045 and traded just above 1.3100 on sovereign demand out of Asia and the Middle East. A pick up in French manufacturing production provided light impetus for EUR buyers early on, while further momentum was noted after strong Spanish auction results. Offers are layered at 1.3100-10, where another round of sell stops are widely reported above. Higher up more prominent sell interest is still noted from 1.3130 to 1.3150, which lies ahead of key resistance around 1.3160, which are lows late December and also the 21-dma.
JPY added losses after the European open, which fueled a USD-JPY move from 88.10 to 88.30, while EUR-JPY rallied to 115.39 highs and AUD-JPY reached new trend highs just shy of 93.30. Ongoing Japanese policy speculation did the rounds, with the BoJ expected to increase asset purchases by Y10 tln and will also consider increasing the current inflation target from 1% to 2%. PM Abe reiterated that it was important to revive the economy and escape from strong yen, while the government confirmed that Economy Minister Amari will also attend the BoJ meeting later this month. There were not new developments, yet reinforce expectations of further yen weakness. Market positioning is also favourable for more USD-JPY upside after the shake out earlier in the week, while Japanese retail interest has also increasingly markedly in the last session or two.[GBP, USD]
Cable is stable ahead of 1.6000 after it was unable to sustain levels under 1.6000 on Wednesday. It triggered stops through 1.6000, but ran into natural buyers ahead of support between 1.5990 and 1.5965. Cable is now in territory where hedging activity could start to pick up. For example, an Asian reserve manager has reportedly been buying Cable on dips for the last two to three sessions, while a Middle Eastern account was also noted today. However, it should not detract from the underlying trend, which is skewed to the downside amid a poor U.K. outlook. Short term sellers are noted from 1.6040-50 and more offers are noted at 1.6070 and into 1.6100.[USD, CHF]
USD-CHF fell to 0.9225 versus 0.9265 at the European open after sovereign interest to sell USD went through. Activity was more prominent via the EUR, though GBP and AUD also saw small flows. USD-CHF is still confined to the recent range and this is likely to continue unless the EUR can force a break out. A USD-CHF move through 0.9200 would trigger sell stops and threaten recent lows at 0.9185. EUR-CHF is still sidelined due to USD and EUR fluctuations, along with SNB's ongoing FX policy stance to defend the downside ahead of 1.2100. It ticked up from 1.2085 to just over 1.2090 on the better EUR tone, but saw no further gains.[USD, CAD]
USD-CAD is range bound. It tested the bottom of its range during Wednesday, but continued to find buyers on either side of 0.9850, while selling continued into the 0.9880 mark. Sell stops were touted at 0.9840, and a break there will likely see the December low of 0.9825 targeted. The stops were safe however, as aggressive USD-CAD buying was reported into the 0.9855 level, with corporate bids still lined up at 0.9850, according to traders. The pairing moved back over 0.9875, though momentum was stopped by reports of offers from 0.9880. It appears USD-CAD is fairly well hemmed in for now.