2013-05-13 06:34 (UTC)
XE Market Analysis
The dollar was underpinned during the Asian session after WSJ's Hilsenrath said the Fed has mapped out a strategy for winding down its bond buying program, but the timing on when to start is still being debated. It might not be the clear and steady path markets expect and officials are focusing on clarifying the stategy so markets do not overreact. Meanwhile, JPY weakened further after the G7 meeting ended without overtly criticising Japan. There was broad agreement not to target exchange rates, which is in line with other G7 and G20 meetings. Elsewhere, both ECB's Draghi and German Finance Minister Schaeuble also quashed reports that ECB was about to buy ABS from eurozone banks.[EUR, USD]
EUR-USD dipped into 1.2940 early on amid dollar strength as early Asian accounts were sensitive to the Fed policy outlook following the latest gambit from WSJ's Hilsenrath. After hitting 1.2940 it backed up after EUR-JPY was boosted to 132.40 on yen weakness. However, the cross gave back all of its gains and closed the Asian session around 132.00, leaving EUR-USD around 1.2975 versus 1.2990 intra-day highs. There may be some potential disappointment in Europe after recent ABS speculation was quashed, though measures to target SME are still are consultation stage. EUR-USD's close around 1.2990 on Friday should encourage selling pressure on upticks.[USD, JPY]
USD-JPY steepened its bid to trade at new trend highs of 102.15. Buyers included short term fund names and Japanese interbank names after the weekend G7 did not criticise Japanese policy directly, while the Fed policy outlook was also in focus. After it traded over 102.00 profit taking and hedging activity picked up and it headed back into 101.65 by late Tokyo trade. Sellers included exporters, option types and longer-term real money accounts, which were reportedly covering unhedged positions. USD-JPY is expected to maintain a bid tone based on contrasting policy outlooks in Japan and the U.S. and 102.50 option barriers are a near-term target. Buyers are noted at 101.50, 101.20 and 101.00 from short term accounts. More support is likely between 100.50 and 100.00.[GBP, USD]
Cable has steadied just under 1.5350 in Asia after versus Friday's 1.5315 lows. There was more conjecture in the U.K. press that the economy is now over its worst and activity is expected to pick up pace over the course of the year. This could encourage fresh long positioning on dips, though the broader dollar may limit upside momentum today. Buyers are noted ahead of 1.5320 and into 1.5300. Offers are tipped over 1.5400 and towards 1.5450.[USD, CHF]
EUR-CHF came under pressure into the European session after it topped out ahead of 1.2450 in Asia, leaving it close to 1.2415. The EUR is looking heavier after Friday's EUR-USD sell off, while USD-CHF has met natural supply ahead of 0.9600 today versus Friday's 0.9628 peak. The dollar is expected to find buyers on dips as the focus shifts to the Fed policy outlook, while the cross is likely to see long position building under 1.2400 after last week's break higher reinforces the bullish technical backdrop.[USD, CAD]
USD-CAD peaked just over 1.0150 on Friday after tripping stops at 1.0130. The pairing subsequently eased back under 1.0120 in light trade, where it remained in overnight trade. Friday's break higher should encourage buying interest on dips, but ultimately it will take its lead from the risk backdrop. Stocks were mixed in Asia and this could keep CAD$ on the heavier side, while Fed policy is also in focus as the debate over tapering picked up on the weekend. Note, offers into 1.0150 and 1.0170.