2013-04-23 07:26 (UTC)
XE Market Analysis
Risk aversion is fueling a bid for USD and JPY in early Europe, which was triggered by the wide miss on the latest manufacturing PMI data from China. The preliminary HSBC reading dropped from 51.6 in March to 50.5 in April. The disappointing China data was compounded by negative comments from China's industry minister, who warned that companies were not investing and were suffering from over capacity. This provided a negative set up for the market ahead of eurozone PMI readings. The best one can hope for today is stabilisation in the eurozone readings after a run of poor data, which has increased expectations of an ECB rate cut. The outlook for the EUR is weak in our view and any upticks should be sold into. More weak data today is expected to tip EUR under 1.3000. Cable is on a stable footing around 1.5250 after central bank flows kept it supported ahead of 1.5200 on Monday. AUD is looking vulnerable after commodity prices were weighed by China overnight and it is just a short distance from 1.0200 barriers.[EUR, USD]
EUR-USD was weighed on by EUR-JPY selling in Asia, which forced it from 1.3070 to 1.3030. However, losses were contained once again by sovereign names, which are reportedly defending the 1.3000 level. Topside movement is still likely to lack momentum though as funds have been selling ahead of 1.3100 amid growing expectations that ECB will be forced to cut rates as economic data deteriorates further. The focus for European traders will come from eurozone PMI releases.[USD, JPY]
JPY traded on a firmer footing after yesterday's risk-off tone, which gained momentum in Asia after disappointing China PMI data. USD-JPY losses were compounded by stop loss selling after notable repositioning by funds back through 99.00 from the 99.40 region. After 99.00 broke it fell quickly to the 98.60 region despite bid interest from Japanese importers and option names. AUD-JPY was also a big mover due to Australia's reliance on Chinese demand for raw materials and it slumped from 102.00 to 100.75. EUR-JPY also topped out ahead of 130.00 in early trade and printed 128.55 on deleveraging. There are still expectations that Japanese asset managers will put money to work overseas, but this is not backed up by flows seen by leading banks since the BoJ announced its policy measures on April-4.[GBP, USD]
Cable is still trading on a relatively stable footing. It tested 1.5200 on Monday, but was underpinned by EUR-GBP supply and sovereign demand for Cable on dips, which lifted it back over 1.5250. The outlook for today will come from CBI industrial trends data and the risk backdrop. Of late, weaker U.K. data has not had a significant impact on the downside since the BoE opted to keep policy unchanged. There are also expectations that the U.K. will slowly recover in H2 after a difficult Q1. We think Cable is more likely to see dip buying today, with risk for a move back over 1.5300.[USD, CHF]
EUR-CHF remains supportive after it moved back over 1.2200 on Monday. Price action is still fairly slow, but the firmer levels should encourage tentative demand from local names. In the near-term, longs are likely to target the 1.2220 level, which was a previous top. A break through this region would fuel buy stops and reinforce a move on 1.2250. USD-CHF is trading comfortably around 0.9330 after it pulled back from the 0.9365 region. Recent dollar firmness has been absorbed by a marked pick up in reserve management activity, leaving it adrift of offers from 0.9375 to 0.9400.[USD, CAD]
USD-CAD is supportive after it firmed up overnight as risk appetite deteriorated. It headed into the 1.0280 area by early Europe after markets reacted to the China PMI release. The focus in Europe will come from eurozone PMI readings. Overall, the pairing remains firmly ensconced inside of familiar ranges though, with 1.0200-1.0300 holding for a week. Bids are reported from 1.0240 to 1.0230, and then into 1.0200, while offers are reported from 1.0280 to 1.300, making it more likely an uneventful CAD session may be in store.