2013-02-26 19:52 (UTC)
XE Market Analysis
FX trade was choppy in N.Y. trade on Tuesday, though aside from USD-CAD inching briefly over 1.0300, major dollar pairings were inside of familiar ranges. Generally, the dollar and yen were firmer, and EUR-USD in particular remained on the back foot, though in a much tighter trading band, near the bottom of the recent range. U.S. data and testimony from Fed cheif Bernanke stirred things up somewhat, as new home sales but in a nearly five year highs, as prices rebounded. Market reaction to Bernanke was relatively muted , though equities did steadily trickle lower through the Q&A session, perhaps as the economic cost of the sequester was tallied publicly by the Fed and European stocks continue to extend their losses on Italian political risks. Eventually though, Wall Street perked up some, which took the dollar and yen off its best levels. Fed Chairman Bernanke testified that QE benefits outweigh the potential costs and risks of the program. He reitereated the Fed will continue its buybacks until there's been "substantial improvement in the outlook for the labor market in the context of price stability." That's in line with our expectations. He again warned Congress on fiscal policy and said Washington should consider replacing sequestration with policies that reduce the deficit more gradually near term.[EUR, USD]
EUR-USD continued to run into sellers over 1.3100, with the pairing attempting, and failing to hold the figure for the forth or fifth time since ahead of the N.Y. open. Sources said there were still some longs that were caught up in Monday's EUR-USD afternoon dive, and are now selling into upticks. Talk is that the pairing needs to close the N.Y. session over 1.3100, or a test of 1.3000 may start building momentum. The EUR did indeed end under 1.3100, meandering on either side of 1.3050 into the close, basing under 1.3040 in mid-afternoon dealings.[USD, JPY]
USD-JPY was hemmed in close to 92.00 in early trade amid options hedging ahead of the 10:00 EST cut, where 92.00 maturities rolled off. Since USD-JPY broke lower overnight there were reports of fresh long position building from Japanese investors and fund names. Buyers were seen from 91.70, along with support 91.15-20. The topside is contained by exporter hedging between 92.30 and 92.70. However, overall we think the long-term should still favor more upside given the Japanese policy outlook. Officially, the nominees for the BoJ Governor role are expected later this week, but the press have tipped ADB chief Kuroda as the front runner and his policy inclination is in line with PM Abe. USD-JPY based into 9115 in N.Y. before rebounding over 92.00 late in the session.[GBP, USD]
Cable hit intra-day lows around 1.5130 after remarks from BoE's Bean and Tucker. The move from 1.5170 came from fund names, though over 1.5200 there was short position building, with the underlying trend still skewed to an eventual 1.5000 test. Following an initial spike up to 1.5208 in the aftermath of the strong U.S. housing data, sterling sellers quickly returned, pushing cable to 1.5110 lows.[USD, CHF]
EUR-CHF posted a modest recovery from the 1.2120 to 1.2190 as markets corrected oversold levels. The EUR upside is still limited though as political uncertainty in Italy in keeping bias with safety. EUR-CHF sellers from 1.2200 to 1.2220 should provide a near-term cap. USD-CHF only managed a modest rally from the fallout in the EUR as heavy cross flows limited its upside to 0.9340 overnight and it has traded a tight range close to 0.9300 thereafter. EUR-CHF managed just a 1.2155-95 range through the afternoon, in relatively quiet trade.[USD, CAD]
USD-CAD put in a floor near 1.0240 overnight, and moved back to1.0265 in early trade. Offers were in place from 1.0280, which stopped the rise on Monday, while corporate bids were seen layered from 1.0020. The pairing later edged up to 1.0303, making new trend highs in the process. The gains came as Wall Street cut gains by more than half, and as oil prices turned negative. USD-CAD initially dipped on the better U.S. housing data, though risk levels continued to drive the loonie, which remains correlated to risk assets. USD-CAD stops are noted from 1.0310-20, with option barriers reported at 1.0350, though good selling emerged at 1.0300, sending the pair back to 1.0260 in afternoon dealings.