2013-01-14 11:33 (UTC)
XE Market Analysis
The dollar and yen posted new trend lows in Asia and then consolidated in Europe. EUR-CHF posted another big footprint on heavy investor unwinding of swissy long positions, which drove it up to 1.2275 and saw marked interest for upside strikes and volatility in the options market. Overnight, 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. This will be a big week for data and events, though today's slate is limited. Comments from Fed Chairman Bernanke will feature, but he doesn't speak until 16:00 ET, after the markets are closed. Traders will look for some clarification of the FOMC minutes that showed a split on how long outright purchases should continue.[EUR, USD]
EUR-USD found support at 1.3350 after an early correction from the 1.3390-00 area on EUR-JPY profit taking. The cross move from 120.00 to the 119.25 region weighed on EUR-USD, but macro funds were moderate buyers on dips in relatively quiet trade. ECB's Praet confirmed that the ECB was in a wait-and-see mode, which also didn't do the euro any harm. The significant shift in the euro tone came last Thursday when rates were left on hold by a unanimous decision. ECB Draghi also noted a marked improvement in eurozone markets and a big increase in capital inflows, which also encouraged macro funds and real money to add fresh EUR long positions. EUR-USD has added nearly four big figures since then and successfully flushed out 1.3400 overnight. Small offers are building from 1.3420 ahead of 1.3450 barriers. Larger resistance is noted from 1.3485, along with the psychological 1.3500 level, where more barriers are noted.[USD, JPY]
JPY edged higher on fund profit taking. USD-JPY moved into 89.35 after modest size sell-interest went through EUR-JPY. Fund names started selling from the 120.00 area and gained momentum on the move through 119.70 and it registered pullback lows of 119.27. Japanese support is noted in USD-JPY into 89.00-10 and towards 88.70. EUR-JPY could also move into 118.80 and 118.50 without doing much damage to the recent trend. 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 traded in a tight range close to 1.6120. An easier dollar tone was offset by general euro firmness, which drove EUR-GBP to new trend highs over 0.8300. The GBP upside was weighed by a good Middle Eastern account offer from 1.6170 on Friday, which encouraged fund selling, while a poor economic outlook has also fueled a fresh build up of short positions. On an intra-day basis option expiries at 1.6100 and 1.6130 should encourage demand on dips, while like last week more extended movement into the 1.6050 area and below should see a build up in hedging activity.[USD, CHF]
EUR-CHF reached new trend highs amid model fund demand after stop loss activity went through in early Asia on general euro strength and more unwinding of swissy long positions. Since last Thursday EUR-CHF has been on rise on increasing improvement in eurozone markets, along with more measures by Swiss banks to dampen CHF deposits. Friday's move above 1.2200 was a major break of range and follow through demand initially cleared away offers and stops between 1.2210 and 1.2230. During the European morning option barriers at 1.2150 were also extinguished to fuel a move on the 1.2275 region.[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 require a move back towards the 0.9860-70 area before there is another meaningful test lower.