2013-03-11 11:47 (UTC)
XE Market Analysis
Markets consolidated following Friday USD rally. Last week's risk-on tone followed through in Asia but waned in Europe, where stock market sank, contrasting to the fresh four-and-a-half-year high in Japan's Nikkei. In Europe Fitch finally downgraded Italy's credit rating to BBB+ from A- on the weak economic outlook and the political situation. German trade data showed a drop in the seasonally adjusted trade surplus as import growth outstripped export growth. This following a disappointing batch of Chinese data, including sub-expectations production and new loan numbers, alongside perkier than forecast inflation figures. The data out of Asia and Europe offset the strong U.S. payrolls report of Friday.[EUR, USD]
EUR-USD didn't budge much from Friday's New York closing level of 1.3004, holding steady after the post-U.S. jobs report drop from levels above 1.3100. Selling interest was reported above 1.3010-20, and stalled at an intraday high of 1.3013 in Asia. Bids were reported into 1.2980, and at 124.50-60 in EUR-JPY. EUR-USD support is marked by Friday's 1.2955 low. There is market talk of a large option expiry at today's NY cut with a strike at 1.3000, which on a quiet day may exert some gravitations pull around this level.[USD, JPY]
USD-JPY was glued around 96.00, having ventured no lower than 95.94. Some exporter selling of the pair had been seen while sell stops were not seen in size until just under 95.00. Japan core machinery orders fell 13.1% m/m to start out 2013, a much larger decline than expected after a 2.8% m/m rise in December. Meanwhile, a scan of market news headlines suggest that Japan markets continues to benefit from the prospects more committed deflation-busting policies, with nominee governor Kuroda having said today that the central bank will consider buying derivatives if he's confirmed as governor and also showing that it will be ready a quick expansion in monetary stimulus. This should help maintain relative yield spreads in favour of the bearish yen trend.[GBP, USD]
Cable is likely to see further downside, with the technical picture reflecting a market sentiment that continues to be distinctly bearish. Sterling close last week below 1.5000, the first daily or weekly close at these levels since the third quarter of 2010, having failed to sustain rebounds above 1.5000 during the latter part of last week. Today the pair is stuck about 15-20 pips above Friday's 1.4915 closing low. Resistance can be expected at 1.4955-60 (trendline) and particularly at 1.5000 (previous low-high pivot level). U.K. data and events are light this week, while next week's 2013-13 budget announcement by the government likely to confirm another year of austerity. There's been lots of talk that sterling is facing a crisis a la 1992, but we think this is overdone. 1992 was a product of a head-in-the-sand government policy to maintain the pound at artificially high levels to remain in the ERM. The prevailing sterling slide is more of a fundamentally driven move rather than a crisis, and we think that rhetorical intervention by the BoE would be enough to pause the trend should it start to look a little irrational[USD, CHF]
EUR-CHF is posting a consolidation day after four straight days of higher highs, presently making time around 10 pips below Friday's closing bid level of 1.2369. Ditto for USD-CHF, after making a six-month peak on Friday. The CHF has been an underperformer lately, driven by rising risk appetite in global financial markets, which the Swiss currency correlates inversely to. Today, stock markets have corrected in Europe from last week's trend highs. Swiss retail sales data for January today were sub-forecasts at +1.9% y/y but had little market impact, and sales were perhaps due a correction after recent strong outcomes. Friday's CPI data, meanwhile, at -0.3% y/y, assured that the SNB will persist with its easy monetary policy and 1.2000 currency limit peg, though CPI components have been starting to show an abatement in disinflationary pressures which should eventually lead to an escape from y/y deflation. EUR-CHF bidding interest is reported at 1.2350-55 and again 1.2305-15, while selling interest is seen into 1.2380-90.[USD, CAD]
USD-CAD eased back under 1.0300 in early North American trade, after peaking near 1.0315 in London. Initial USD-CAD support was seen at 1.0250, with resistance at 1.0340. Barrier options remained in effect at 1.0350. The pairing subsequently slid to 1.0235 from near 1.0300 on the combination of strong employment reports from both sides of the border. Support at 1.0250 was easily breached, though bids were seen in place from 1.0220 to 1.0200. Intra day short covering helped the greenback higher into the close, with USD-CAD testing 1.0300 again.