2013-03-06 20:05 (UTC)
XE Market Analysis
The dollar firmed further in N.Y. trade on Wednesday, seeing EUR-USD dip underneath 1.3000 again, and USD-JPY head over 94.00 into the BoJ meeting. USD-CAD bounced on the back of a dovish BoC policy statement, while cable headed back under 1.5050 on ongoing UK economic concerns. U.S. economic data was mixed, with the February ADP employment survey coming in about 30k better than the 170 median forecast. Factory orders fell, though were in line with expectations. The Fed's Beige Book reported the economy generally expanded at a "modest to moderate" pace, as expected. Equities continued their climb, though into the BoJ, Boe and ECB announcements overnight and Thursday, we look for a relatively quiet early Asian session. Thursday's U.S. economic calendar will be of interest, with weekly jobless claims, trade data, and revised productivity all on the docket.[EUR, USD]
EUR-USD broke 1.3000 after U.S. accounts chipped away at the downside to trip weak stops. The first round went through under 1.3010 and then below 1.3000 as dollar buying steepened following the U.S. ADP print. EUR backed up a bit on the factory orders drop, but overall position traders wrere more inclined to run with EUR shorts into tomorrow's ECB policy decision. A steady hand is widely expected, while Draghi should maintain a dovish stance, which will keep EUR heavier. There is a reasonable chance that EUR will trade at new 2013 lows tomorrow through 1.2965. Note, option barriers at 1.2950, 1.2925 and 1.2900.[USD, JPY]
USD-JPY gains slowed as large option strikes at 93.50 attract ahead of the N.Y. cut. It was also in territory where exporters and funds names had previously bought JPY ahead of the fiscal year-end. Later, USD-JPY edged over 94.00 tripping light stops at 93.70 in the process. A large U.S. shop raised its guidance for USD-JPY to 94 for year end, though more recently, a Swiss name lowered its forecast to 85 from 100. Apparently not much reaction to the forecast shifts, as dealers said the trend had been firmly higher since the Asian session last night, as it appears there has been good pre-BoJ related buying underway.[GBP, USD]
Cable triggered stops through 1.5100 to eventually reach under 1.5020 lows. There are suggestions amongst FX sources that the dollar is gaining ground after yesterday's surge in U.S. stocks, which saw the Dow post a record close. With central bank policy meetings due from the BoE and ECB tomorrow short term accounts are placing their faith in the dollar and the U.S. outlook. The long term risk for Cable is still under 1.5000, but we think Cable could rally tomorrow if the BoE leaves policy unchanged, which is now the outlook after yesterday's robust U.K. services PMI reading.[USD, CHF]
EUR-CHF broke higher after a model fund fished for stops through 1.2300. A series of resistance levels gave way and it extended through 1.2310. With EUR-USD fairly static around 1.3000, USD-CHF has taken off from 0.9405 and pushed back over 0.9480, and through option barrier exposure at 0.9450. EUR-CHF should be supported on dips now after the bullish break and with risk holding up, though EUR longs may be a bit restrained ahead of tomorrow's ECB meeting.[USD, CAD]
USD-CAD spiked up to 1.0330 following the BoC announcement, where rates were left unchanged, as expected. The dovish tone of the statement had been anticipated over the past couple of days, some of which was likely priced in ahead of time. The statement included "somewhat more" subdued inflation versus the January forecast, and "material exess capacity". All in all, not indicative of tightening any time soon. Option barriers at 1.0350 were defended into the highs of 1.0337, and the pairing subsequently eased back to 1.0300 before stabilizing.