2013-04-08 10:31 (UTC)
XE Market Analysis
JPY underperformed as the BoJ prepared to start its new bond buying scheme, which sent the Nikkei to its highest levels since August 2008. It said it will buy Y1tln of JGBs with maturities between five and 10 years and Y200 bln on bonds exceeding 10 years. USD-JPY pressed higher from the Asian open to trade at 98.85 and extended 99.02 trend highs in Europe. Further gains were stymied by option related flows amid a large 98.50 expiry for today's N.Y. options cut. The EUR maintained a steady tone throughout close to 1.3000 following last Friday's rally after the U.S. jobs disappointment. Cable consolidated around 1.5300 after it struggled to sustain higher levels in Asia. German industrial production rose 0.5% m/m in February, which was in line with the market median, while eurozone sentiment data fell to -17.3 in April from -10.6 previously as Cyprus woes weighed.[EUR, USD]
EUR-USD traded on a steady footing in quiet trade. USD-JPY's move to new trend highs added some weight on the EUR-USD topside and it moved into 1.2975 after the European open. However, a fall in Spanish and Italian bond yields weighed, while subsequent EUR-JPY demand out of 127.80 to 128.80 trend highs provided support. EUR-USD traded into the 1.3020 area, but a build up of offers ahead of 1.3040-50 capped gains ahead of the North American open. The market did not react to the fall in the eurozone sentix index to -17.3 in April from -10.6, which was weaker than expected, but not a surprise given the developments in Cyprus over the last month and the weak eurozone data. Overall, the EUR has held on to most of the gains made in the wake of the recent ECB policy meeting and Friday's disappointing NFP data.[USD, JPY]
USD-JPY traded at 99.00 after good fund demand went through from just under 98.50 after the European open. The BoJ announced the details of the maturities it will target when it buys bonds under its asset purchase scheme, which was the catalyst for more yen weakness in Asia. Market participants are skewed heavily towards a near-term test of the psychological 100.00 level due to the BoJ's bold policy moves, while tension in Korea should also add to the selling pressure. As USD-JPY moves into 100.00 movement may turn more choppy due to the influence of long standing exotic option structures. Japanese investors are also expected to target bonds overseas, with eurozone reportedly a region where interest should pick up. This was the source of sharp movement on Friday as some domestic investors switched out of long-term JGB positions.[GBP, USD]
GBP eased as short term accounts pared back overstretched positions in Cable, while EUR-GBP benefited from EUR buying interest on dips as Italian and Spanish bond yields dropped. The cross was lifted out of 0.8470 to trade just above 0.8500, which forced Cable into 1.5300. Cable is expected to meet buying interest on dips after last week's rebound out of 1.5035 following the BoE monetary policy decision and the upbeat services sector PMI data. There are hopes that the U.K. will avoid a triple-dip recession. Cable bids are noted at 1.5300, 1.5280 and Friday's consolidation zone at 1.5240-50.[USD, CHF]
EUR-CHF remained supportive around 1.2150 after it ran into buyers out of the 1.2130 area in Asia, where the 200-dma is noted. Local names had the standout interest, though there was also demand from a German account and a U.S. name to take it back to 1.2160 after the European open. In recent sessions upside movement into 1.2170-80 and 1.2200 has been absorbed by standing offers and the underlying EUR tone. However, the EUR has improved since the ECB policy meeting and the disappointing U.S. data last week, which may help EUR-CHF to shake of its recent heaviness. USD-CHF is relatively stable today around 0.9350 currently after Friday's drop to 0.9310, which followed the NFP data miss.[USD, CAD]
USD-CAD experienced consolidation overnight following Friday's surge higher, which came after the mix of jobs data from both sides of the border, where weak reports from the U.S. and Canada, along with a Canadian trade deficit weighed on the loonie. USD-CAD peaked over 1.0230, after idling near 1.0125, but pulled back to 1.0170 after a much improved Ivey PMI outcome, which is a positive lead for the Canada growth outlook.