2013-01-23 20:00 (UTC)
XE Market Analysis
The dollar was mostly higher in N.Y. trade on Wednesday, with gains coming versus the euro and CAD in particular. Option backed selling weighed on EUR-USD, though dip buying under 1.3300 continued. USD-CAD meanwhile, spiked in the aftermath of a more dovish policy statement. There was little in the way of U.S. data to attract attention, though as stocks moved modestly higher in afternoon trade, the greenback eased back some. Thursday's U.S. calendar reveals weekly jobless claims, the flash Markit January manufacturing ISM index, December leading indicators, and weekly EIA petroleum inventory data.[EUR, USD]
EUR-USD was supported into 1.3325 in early trade, though when the pairing came up short in a test of the London high over 1.3350, sellers re-emerged. The euro eventually based at 1.3265, down from highs around 1.3345 early in the session. The pairing was supported into the 10:00 EST options cut, though traders noted good option backed selling from 1.3340 after expiry. There had been talk of 1.3300 expiries early on. Sovereign bids were again in place under 1.3280, limiting downside.[USD, JPY]
USD-JPY headed back over 88.50 into the N.Y. open after MoF's Nakao said he is watching JPY and will take appropriate action, but denied Japan was trying to competitively devalue its currency. USD-JPY met real money bids from 88.00-10 in early Europe and edged back to the 88.25-40 region, where it chopped for most of the European morning. Some of the latest USD-JPY demand came after EUR-JPY reclaimed 118.00, which tripped intra-day trailing stops. JPY is more broadly balanced after profit taking went through over the last 24 hours following BoJ meeting, where it announced open ended asset purchases and an inflation target of 2%. U.S. traxde saw USD-JPY trade either side of 88.50 in uneventful dealings.[GBP, USD]
Cable bottomed out ahead of 1.5800 in early Europe amid good Middle Eastern demand and then squeezed to session highs over 1.5890 in N.Y. An unexpected fall in the U.K. December claimant count and the BoE minutes, which revealed an 8-1 vote in favour of keeping QE unchanged at GBP 375 bln, supported sterling. The BoE said that recent data strengthened some members belief that no more QE was needed. However, it also argued that sterling may have exceeded levels compatible with the necessary rebalancing of the economy. In recent sessions many commentators have warned over potential sterling weakness due to poor economic fundamentals. MS is the latest bank to issue a forecast for further weakness, while leading bond managers have also warned that sterling could be heading for a perfect storm if gilts see a reduction in foreign investor demand as the eurozone recovers.[USD, CHF]
EUR-CHF bargain hunting went through after it headed into 1.2350. Asian accounts sold into strength after it closed under 1.2400 during Tuesday's N.Y. session. However, once the European session got underway Swiss and German names lifted it back up to 1.2390. Since EUR-CHF broke out of the 1.2000-1.2100 range it has closely tracked repositioning via yen-funded trades and this tended to guide action today. The cross is still correcting overbought levels, yet longs are still positioned for a move back over 1.2500. However, the success of this trade will largely depend on whether the eurozone can sustain the improved conditions seen since the start of the year.[USD, CAD]
USD-CAD spiked higher following the BoC announcement, where rates were left unchanged, as expected. The statement though, while saying "modest" stimulus removal would likely be required over time, the Bank said the timing is "less imminent". USD-CAD rallied over 0.9970 from under 0.9930. USD-CAD eventually moved up to 0.9990, where it reportedly ran into barrier option defense selling interest. Option strikes at 1.0000 were noted, though bids drove the pairing to 1.0004 highs.