2013-04-12 10:37 (UTC)
XE Market Analysis
Risk reduction influenced, which boosted the dollar, yen and swissy. The eurogroup meeting saw some of the focus shift back to eurozone uncertainty. Investors were jarred by reports that Cyprus may need more aid, though this was denied by German officials and eurozone sources. There was more unhelpful rhetoric from North Korea, which warned Japan that Tokyo would be the first target in the event of a war on the Korean Peninsula if it continues to maintain its hostile posture. U.S. Secretary of State Kerry said the U.S. will, if necessary, defend its allies. The U.S. market should focus on U.S. retail sales. There is also PPI, preliminary Michigan sentiment data and business inventories to digest.[EUR, USD]
EUR-USD was weighed by profit taking after another topside failure overnight and a more defensive tone across global markets. EUR-USD turned away from 1.3125 and headed to 1.3050. Eurozone industrial production came in at 0.4% m/m versus a 0.2% median, but was revised down to -0.6% in January from -0.4% previously. Into today's eurogroup meeting, Dijsselbloem said the exchange rate is not on the agenda, while the BoJ policy is also unlikely to be discussed. However, a U.S. research desk said the EUR is one of the best performing currencies since the BoJ announced further easing amid expectations that money will flood into the eurozone and this could eventually force Draghi's hand. Note, however, that the latest MoF data did not indicate increased Japanese investor demand for foreign bonds, but a pick up in repatriation.[USD, JPY]
USD-JPY longs book profit after large offers capped in Asia. Large exporter hedging and heavy option related offers limited the topside from 99.70-80 after it registered new trend highs of 99.95 in Asia. Since the European open it drifted from 99.50 back to 99.00, though longs are still in play while near-term support around 99.00 and 98.50-70 holds. The correction in FX was mirrored via the Nikkei and JGBs after the results of the BoJ's latest purchase operation fell short of market expectations. 10-year JGBs were a full point lower by the Tokyo close around 143.75 and the TSE halted futures trading again after excessive moves.[GBP, USD]
Cable posted modest losses after it failed to sustain a move over 1.5400 in overnight trade. European names sold in front of 1.5400 early on, while stale longs also reduced positions amid an overhang of good offers ahead of good resistance from 1.5425 to 1.5450. The correction extended into the 1.5355 region, where the first line of natural support put a floor in place. U.K. construction output was mildly supportive after it rebounded 5.5% m/m in February and was revised up to -4.8% in January from -6.3% previously, leaving it down 7% on the year. The number does not changing the big picture view, with the correction anticipated after January's weather effected slump.[USD, CHF]
USD-CHF held steady as support from late February at 0.9270-80 put a floor in place on Thursday. Light dollar repositioning has fueled a move just over 0.9330. However, the underlying tone is still skewed to a potential downside test, which should fuel offers from 0.9340-50. Ahead of today's U.S. releases movement is likely to be contained and appetite to test the downside could be limited if risk appetite is compromised into the weekend.[USD, CAD]
USD-CAD firmed up from 1.0095 lows in Asia to trade back over 1.0125 in Europe as risk aversion picked up on eurozone uncertainty, while tension on the Korean Peninsula remained on more unhelpful rhetoric from North Korea. Stocks and commodities fell, which weighed broadly on the commodity bloc currencies. USD-CAD should maintain topside bias in the short term after bids at 1.0080 held on Thursday. Offers are noted from 1.0140-50, which should initially cap any further gains and more sellers are tipped from 1.0170.