2013-03-26 10:36 (UTC)
XE Market Analysis
USD and JPY were supportive overall as markets were still cautious following the fallout after the Cyprus bailout deal, which included unhelpful remarks from eurogroup head Dijsselbloem. EUR-USD closed under the 200-dma at 1.2880 on Monday, which fueled selling pressure on strength, but it could not take out support ahead of 1.2825 barriers. Cable and AUD maintained narrow ranges as dollar inflows were offset by a residual safe haven bid due to EUR-cross repositioning by fund names. JPY flows were patchy into the Japanese fiscal year-end, which left USD-JPY in a narrow range close to 94.00. BoJ Governor Kuroda maintained that it would do everything in its power to get inflation to 2% in two years. Like last week Kuroda suggested that bond buys will include larger amounts and longer maturities.[EUR, USD]
EUR-USD made another downside test after good Middle Eastern supply went through from just over 1.2880. Follow through selling from European interbank account forced lows of 1.2839, which was around 10 pips above yesterday's pullback lows. The EUR downside is being supported out of Asia and fueled speculation of outstanding option barriers from 1.2825 to 1.2800. Outstanding plain vanilla strikes also include 1.2800, 1.2805, 1.2815 and 1.2850 maturities for today N.Y. cut.[USD, JPY]
USD-JPY drifted back to 94.00 after it was unable to overcome exporter offers from 94.50 overnight and as further JPY cross weakness went through after the European open. EUR-JPY fell back from over 121.50 to 120.90 and GBP-JPY also dropped from 143.50 to 142.80. Japanese desks out of London tipped residual flows related to the fiscal year-end. However, interest is patchy. Many corporates and financial institutions are already hedged after activity went through a bit earlier this year as seasonal flows overlapped the vote on the new BoJ board. USD-JPY should still meet bargain hunting on a 93 handle in pre-BoJ positioning as recent remarks from Kuroda set the market up for more stimulus on April-4.[GBP, USD]
Cable maintained tight ranges just under 1.5200 after it failed to sustain an early move just over 1.5205. Today's option expiries at 1.5175 and 1.5200 have kept interest lows in relatively quiet trade. In the last week or so GBP has performed well as it renewed some of its safety credentials in the wake of eurozone uncertainty; and since BoE Governor King and other MPC members ensured that it was no longer a one-way bet. The short term technical picture is also supportive and prices could gravitate back to higher levels on more positive data. Last week, a rebound in U.K. retail sales added momentum to the sterling recovery. On the topside, orders have been placed from 1.5250 and short term chart resistance is noted at 1.5275.[USD, CHF]
EUR-CHF is stuck at 1.2200 after it was unable to sustain higher levels on Monday. A knee-jerk rally over 1.2250 after the Cyprus deal was struck proved to be shortlived and it headed back 1.2190 on broad EUR losses. USD-CHF's move towards 0.9500 on safe haven activity enabled the cross to steady and it is tied just in front of 1.2200 today. EUR and USD fluctuations will leave the cross rangebound in the near-term, along with outstanding 1.2200 option expiries. Since eurozone uncertainty picked up over the last week CHF has been supported against the EUR. However, SNB board members have warned that it will still contemplate other measures to offset increased swissy inflows and maintain the cap at 1.2000.[USD, CAD]
USD-CAD risk remains on the downside after it broke below 1.0200 on Monday. There was still appetite to buy CAD$ on dips today even with equity markets struggling after the initial rally on Cyprus dissipated. The March low of 1.0182 should provide initial support, but in the short term the market is gearing up for a stop hunt lower down. Offers should contain corrective action towards 1.0225-30.