2013-04-22 10:29 (UTC)
XE Market Analysis
FX markets started the week on a quiet footing. JPY was an early mover following the G20 meeting, which backed Japan's policy stance and drove USD-JPY to 99.90 in Asia, though in Europe activity was more restrained on good two-way order flow. EUR-USD struggled following last week's inability to sustain 1.3100 and on ECB rhetoric on the potential for a rate cut, data permitting. There was mild support after Italy re-elected Italian president Napolitano for a second term, which could increase the chances of an Italian government being formed. Cable challenged 1.5200 overnight as market participants reacted to the Fitch U.K. rating downgrade on Friday, but it did not have a lasting impact as it was widely expected. Equity markets were supportive, but there was no appetite to to sell the USD as the focus was on macro fundamentals in Europe.[EUR, USD]
EUR-USD is currently range bound. EUR headed back into the familiar 1.3000-1.3100 range after it could not sustain Friday's brief move over 1.3100, which came on low market participation. EUR backed away from 1.3075 in early Europe after offers held in front of 1.3100 in Asia, while European market participants keyed off weaker opening levels for European stocks. However, after hitting the 1.3035 region buyers have returned and more limited movement may continue. There is no big data to focus on and option expiries are also dotted around the 1.3000-1.3120 range, with no big influences. The risk backdrop will dominate and day traders will play short term range breaks, but the big picture story is still to fade rallies as eurozone fundamentals remain poor.[USD, JPY]
USD-JPY is underpinned after it started the session on the front foot following Friday's N.Y. rally after Japan avoided G20 criticism. USD-JPY pushed up to the 99.90 area in Asia after starting the session ahead of 99.50. In Europe, dip buying kept it underpinned from 99.60-65, though very strong offers related to long standing exotic option structures continue to restrain price action. Fund buyers are meeting exporters, profit take orders and option related offers, which should keep ranges tight in the near-term. Above 100.00 there is also long term resistance from the top of the Ichimoku monthly cloud at 100.20 and more long-term barriers from 100.50. Buy orders are tipped from 99.50, 99.20 and 99.00.[GBP, USD]
Cable found support ahead of 1.5200 overnight and maintained narrow ranges thereafter in quiet European trade. There was no lasting impact from Friday rating downgrade by Fitch to AA+ outlook stable. The move offered some traction for GBP bears after Friday's weak close under 1.5250. However, bids from 1.5200- 10 held and this encouraged light profit taking, which took it back to 1.5240. Appetite to add long positions was limited though as stocks traded within a narrow range and after last week's negative close. Offers are tipped from 1.5250 to 1.5270, while option related supply is anticipated into 1.5300, where expiries are noted for several sessions this week.[USD, CHF]
EUR-CHF is supportive after it rallied to one-week highs around 1.2190 on Friday. The pick up in risk appetite on Friday, along with EUR-JPY demand provided a positive lead. However, EUR-USD is still struggling to sustain higher levels today, largely due to poor economic fundamentals in the eurozone, which is increasing expectations of a potential ECB rate cut. ECB officials have said in recent sessions that a rate cut is a possibility if incoming data supported a move. This is capping EUR-CHF's ability to clear good size offers from 1.2200. SNB's Jordan maintained his support for the EUR-CHF lower limit at the G20, adding that other nations don't question the EUR-CHF cap. The easier EUR-USD tone has lifted USD-CHF to 0.9350, but further gains may be limited amid increasing talk of central bank reserve diversification from Asian accounts.[USD, CAD]
USD-CAD traded a tight range close to 1.0250 since the Asian open. It rallied marginally on Friday on general dollar strength, but since the BoC policy outcome it has struggled to break out of the range. Bids are noted from 1.0240 to 1.0230 today and 1.0200 is also a major support level after it held for several sessions. Offers are noted into 1.0300 and stops should feature on further USD-CAD strength. The 1.0300 level has held since early March and option barriers are also likely to be an influence around those levels.