2013-01-22 12:02 (UTC)
XE Market Analysis
The FX market was volatile after the BoJ moved to open-ended asset purchases and a 2% inflation target. JPY strengthened on profit taking, which was further exacerbated by heavy EUR cross selling amid unsubstantiated rumors. There was early talk that German regulator Bafin asked two banks to simulate an investment bank break up due to balance sheet risk from trading activities, which weighed, along with speculation that ECB's Weidmann could resign. Weidmann talk was described as "utter garbage by the Bundesbank. Positive developments included a much stronger than expected German ZEW release and another encouraging Spanish bill auction. U.K. government borrowing improved on backward revisions, but on the macro front CBI industrial trends unexpectedly fell.[EUR, USD]
EUR-USD overcame a sell off from 1.3370 to 1.3270 after Bundesbank denied the Weidmann resignation rumor, though most market participants didn't take it too seriously. More importantly, the German ZEW came in much stronger than expected and the Spanish bill auction beat its target taking EUR to rebound highs just over 1.3350. Fund names and short term accounts loaded up on longs in the 1.3270s and buying gained traction back through 1.3300. Market participants suspect the sell off was exacerbated by a large sell order via DAX futures and big stops via the EUR crosses. Overall, the EUR maintains a dip buying mentality in front of 1.3250 and longs are still looking to evaluate price action into the 1.3400 area, which has now held for several sessions.[USD, JPY]
USD-JPY sank to intra-day lows under 88.40 after large stops gave way through 88.60 and 88.50 amid deep EUR-JPY selling pressure. The cross plunged from 119.00 to 117.33 lows after good support gave way at 118.60, then 118.20 and 118.00, respectively. A wave of stops drove the move lower, which was exacerbated by the impulsive EUR sell-off amid a variety of market rumors. The as-expected BoJ policy decision has also played its part as speculative accounts booked profits on yen shorts. There may be some fresh yen short positions put back on following the shake out in USD-JPY and EUR-JPY today.[GBP, USD]
Cable got no respite from U.K. borrrowing data. Backward revisions improved overall government finances, but Cable remained heavy around 1.5850 after it traded at intra-day lows of 1.5809, which was just shy of yesterday's 1.5806 lows. An Asian central bank provided support at the lows, along with dollar supply related to EUR-USD's rebound. EUR-GBP strength weighed on Cable early on after it reached new trend highs around 0.8440 before it fell back to 0.8390 on the brief period of EUR long liquidation. However, this has now run its course and EUR-GBP is back on the front foot over 0.8400. Longs are looking to challenge 0.8450 barriers, leaving Cable skewed towards late August levels under 1.5800.[USD, CHF]
EUR-CHF was hurt by sell stops under 1.2400 after EUR came under heavy selling pressure following sharp losses on the German Dax. EUR-CHF was caught long in the mid-1.24s after early buying interest and fell quickly after 1.2400 gave way to reach 1.2340 lows. After the initial drop bargain hunting picked up, while the rebound in EUR-USD enabled EUR-CHF to head back to 1.2400. Bias is still on higher levels, but the sharp sell off has done a bit of damage to the short term trend and a range trading theme is likely to ensue for now.[USD, CAD]
USD-CAD is underpinned since it broke above 0.9900 on Friday and extended to 0.9945. On the whole, a sideways trading theme has been noted since the start of the week ahead of the BoC policy decision. Movement is contained by short term bids at 0.9900 and residual option related offers ahead of 0.9950 and late December highs at 0.9970. Note, however, that the recent break higher has reinforced the underlying trend, leaving near-term bias on the topside.