2013-05-03 06:36 (UTC)
XE Market Analysis
Activity in Asia was light after Thursday's large price swings over the ECB rate decision and the drop in U.S. jobless claims to five year lows. EUR tested both sides of the market and settled on a 1.30 handle after Draghi said the ECB was technically ready for negative deposit rates. USD-JPY stabilised around 98.00 after it rebounded out of 97.00, but there was limited movement in Asia, with Tokyo closed as part of the Golden Week holidays. AUD-USD was supportive after yesterday's rebound in commodities, but upward momentum was limited from 1.0280 after China's official services sector PMI data came in at 54.5 from 55.6, while Australia's service sector index tumbled to 44.1 in April from 49.6 previously, which reinforced expectations of a RBA rate cut next week.[EUR, USD]
EUR-USD stabilised ahead of 1.3050 after it bottomed out around 1.3040 during yesterday's N.Y. session. There was light supportive flow on dips, with range players look to buy ahead of support at 1.3030 and 1.3000. Both corporate hedging and reserve management activity has been a feature on the EUR downside over the last two weeks and should underpin ahead of U.S. data. Topside movement is likely to be more limited after a number of accounts were caught long over 1.3200 yesterday and after the close under 1.3100.[USD, JPY]
USD-JPY ranges were extremely narrow around the 98.00 level after the sharp short squeeze on Thursday out of 97.40 to 98.40 as macro funds piled into EUR-JPY after the ECB cut rates. However, EUR-JPY experienced a sharp reversal after ECB's Draghi open the door to more easing and also said ECB was technically ready for negative deposit rates. EUR-JPY slumped from 129.90 to 127.50, which dragged USD-JPY back to 97.60, where long position building was noted after this week's persistent failure to take out 97.00. Option positions are still widely tipped at this level, while USD-JPY may also be in better shape to make another topside test after the shakeout from 99.90.[GBP, USD]
Cable longs are still in decent shape after the pair met buyers around 1.5500 following a retracement from Wednesday's highs just over 1.5600. The focus for sterling today will come from the U.K. services sector PMI, which will complete the picture on the U.K. economy after better than expected manufacturing and construction data this week. The number should point to moderate GDP growth in Q2 and will underline expectations of a steady policy hand from the BoE. Cable looks destined to revist levels over 1.5600 based on improving fundamentals.[USD, CHF]
EUR-CHF has found a modicum of support after prices settled down following Thursday's sharp price swings, which came over the ECB rate announcement and accompanying press conference. Buyers were noted around 1.2200 and it drifted back towards the 1.2220 region. The mixed equity market backdrop is likely to contain heavier EUR demand against the CHF though and offers should cap towards 1.2240 and over 1.2250.[USD, CAD]
USD-CAD moved over 1.0120, extending the rebound from a 2 1/2 month low around 1.0050 on Wednesday. The move out of CAD$ came after Stephen Poloz was selected as the next BoC governor. He is the current President of Export Development Canada. The change in governor may invite speculation that the Bank will drop its tightening bias, or be less tolerant of CAD strength, though Finance Minister Flaherty denied that the CAD$ was a consideration in the choice of the new BoC governor. The market will be mindful of the governor designate's background at Export Development Canada, noting that the BoC has been taking a laissez-faire approach to the currency, maintaining a tightening bias even as other central banks engaged in aggressive policy stimulus.