2013-05-29 11:03 (UTC)
XE Market Analysis
The dollar extended its rally in Asia, but pulled back in Europe on repositioning. Weaker equity markets in Europe weighed on the dollar tone as U.S. yields headed lower. The catalyst for the shift in sentiment came after the IMF cut its growth forecast for China. EUR rebounded out of 1.2840 and squeezed up through 1.2900 as month end flows also went through. Cable was mixed as option related demand ahead of 1.5000 was offset by good EUR-GBP demand and a negative outlook from PIMCO's Ivey, who predicted more GBP weakness. AUD-USD headed to new trend lows around 0.9525 by early Europe on the China news and poor macro leads from Australia, but then reversed over 0.9600 as the dollar corrected.[EUR, USD]
EUR-USD traded on a firmer footing since the European session got underway. The rebound out of 1.2840 came after the dollar corrected following yesterday's strong gains. Market positioning was overstretched, which tempered downside momentum, but there was also strong bid from European corporate accounts on the way up. Into the 1.2880-90 region there was talk of semi-offical offers, which kept 1.2900 in check for a time before month end demand triggered a move up through 1.2900. Economic data did not provide a strong lead for the EUR. German jobless jumped in May, while eurozone M3 growth accelerated and German CPI picked up. After yesterday's influentials moves in the U.S. session this is going to guide price action ahead.[USD, JPY]
JPY firmed up from the European open after IMF cut the latest China 2013 growth forecast to 7.75% from 8.00% previously due to a weak world economy and exports. USD-JPY met good exporter selling into 102.50 and losses accelerated as speculative positioning was unwound, which tipped it through near-term support at 102.00 and stops at 101.80. The downturn in USD-JPY was in tandem with the back up in U.S. yields as stocks declined. The JPY crosses also headed lower on the broad risk-off move. EUR-JPY fell from 131.50 to 130.75, AUD-JPY fell from 98.00 to 97.10 and GBP-JPY dropped from 154.00 to 153.00.[GBP, USD]
Cable rebounded from 1.5008 lows. Option related demand and corporate hedging went through, while there was added traction from a modest dollar correction, which was driven by USD-JPY's downturn. Cable traded just above 1.5060, though the bearish underlying trend and month end related flows in EUR-GBP weighed late on in the European morning. Cable reverted back to the 1.5030 region, while EUR-GBP overcome an early dip into 0.8540 and headed to 0.8575. Sterling sentiment was also impacted by a disappointing CBI distributive trade survey that missed expectations. PIMCO's Amey also said GBP may weaken against the USD with Carney at the BoE, while BoE's Bean said the poor export performance may continue.[USD, CHF]
CHF benefited from safe haven demand, which fueled a EUR-CHF drop from 1.2570 to 1.2489 lows. Corporate accounts were buyers of the CHF from the open, while a reduction in speculation positioning accelerated after the IMF cut the China growth outlook and stocks tumbled. The EUR-CHF downturn also triggered a USD-CHF reversal from 0.9790 to 0.9690 lows and stops were evident through both 1.2500 and 0.9700. Options are expected to attract in EUR-CHF at 1.2500 today, while USD-CHF movement from here will be dependent on how U.S. yields and stocks perform during the N.Y. session. During Tuesday's session strong U.S. data boosted stocks, yields and the dollar as investors keyed up the improving U.S. outlook.[USD, CAD]
USD-CAD consolidated Tuesday's gains during overnight trade. It extended to 1.0420 after racing up through 1.0400 barriers by yesterday's Northy American close. There was light profit taking into the European session by range players fading moves ahead of resistance at 1.0430, while positive guidance for CAD$ came from AUD-CAD flow after the IMF cut its China growth forecast and PIMCO gave a negative assessment on Australia's outlook. It is likely that some light repositioning will go through ahead of today's BoC policy announcement, where there has been speculation the Bank could drop its long in the tooth tightening bias. However, it is widely thought that Carney may decide to leave things as they are until the new governor Polaz takes charge from June.