2013-01-14 06:44 (UTC)
XE Market Analysis
The dollar and yen continued to trade at softer levels as specs took guidance from momentum studies early on and risk gained positive traction from firmer equity markets. Stocks were boosted by a 2%-plus rally on China's SSEC after the head of the securities regulator said it could substantially increase the quota for foreign investors to invest in domestic stocks as a means to develop the market. Japanese markets were closed, but JPY still reached new trend lows after Kyodo News said PM Abe and BoJ will state a non-binding inflation accord of 2% in a planned joint statement, but there will be no deadline set for achieving the target, according to sources. Meanwhile, Chicago Fed's Evans told a Hong Kong forum that the Fed could wind down QE if 200k jobs were created a month over a period of six months to a year.[EUR, USD]
EUR posted broad gains as positive risk appetite added to recent bullish momentum. EUR-USD made an early run up from 1.3350 and accelerated after 1.3375 gave way with strong offshore fund demand for EUR-JPY and EUR-AUD helping it up through 1.3400 barriers. However, after making two attempts over 1.3400 it ran into natural supply and drifted back to 1.3385 by late Asia. There are small offers from 1.3420 that could slow the uptrend, along with option barriers from 1.3450. However, the underlying trend is skewed to the next area of meaningful resistance around 1.3485, along with strong psychological resistance at 1.3500. Buyers are likely into 1.3375-80 and into 1.3350, which provided some fleeting supply on the way up.[USD, JPY]
USD-JPY and EUR-JPY traded at new trend highs of 89.67 and 120.12, respectively, over the course of the Asian session. USD-JPY was targeting by early Asia-Pacific accounts and then the cross later on amid broad euro strength. A supportive equity market backdrop encouraged intra-day move, though for the most part flows were a continuation of heavy macro flows seen Thursday and Friday. USD-JPY is skewed to a test of 90.00, where very large option protection will emerge. There is scope for further upside as Japanese policy makers continue to indicate very aggressive measures to deal with deflation and kick start the economy. The government and BoJ are expected to release a joint statement after the BoJ policy meeting on January 21-22 that will indicate a non-binding agreement on a 2% inflation target, according to a weekend Kyodo News report. The agreement will not set a deadline for achieving this target, according to sources close to the matter.[GBP, USD]
Cable found a modicum of support on dips as general dollar weakness fueled a move back into the 1.6150 region in Asia. GBP had increased broad weakness ahead of Friday's European close after the latest U.K. GDP estimate from U.K. think tank NIESR. It said GDP for the three months ending December came in at -0.3%. The ONS is due to release the preliminary reading for Q4 GDP in two weeks time and is bound to raise triple dip recession risk following poor U.K. production data earlier today. Cable briefly traded under 1.6090 after it pulled back sharply from 1.6160 after a Middle Eastern name held the line from 1.6170-80. Meanwhile, EUR-GBP extended gains to reach new trend highs just shy of 0.8300, which left trade weighted sterling around six-month lows.[USD, CHF]
EUR-CHF reinforced gains over 1.2200 after it posted four-month highs last Friday. The EUR-CHF rally started on Thursday and gained momentum Friday after Swiss December CPI came in at -0.4% y/y, which reinforced speculation over negative deposit rates. Late last year both UBS and CS decided to charge on CHF deposits placed by financial institutions, but ZKB warned small savers has reignited SNB policy speculation. EUR-CHF's clean break of 1.2200 indicates a new trading range and December 2011 levels from 1.2240 and higher up offer potential for an extended upside move. A continued improvement in the eurozone could also reduce capital inflows and add weight on the swissy.[USD, CAD]
USD-CAD maintained levels under recent support at 0.9850. However, it still experiences a range bound tone after basing just under 0.9820 on Friday. Traders reported ongoing bidding interest all the way down, which has slowed declines. More standing buyers are seen at 0.9800, while stops are noted from 0.9780. Too many bids ahead of 0.9800 has fueled short covering and it may need a move back towards the 0.9860-70 area before there is another meaningful test lower.