2013-05-08 19:24 (UTC)
XE Market Analysis
The dollar was broadly softer in N.Y. trade on Wednesday, with EUR-USD aided by comments from the ECB's Mersch, who suggested the Bank may securitize SME loans to encourage lending, adding that the central bank is looking at ways to restart the ABS market. The euro rose to just shy of 1.3200 after finding support into 1.3075 overnight. USD-JPY stumbled some as longs failed to make progress over 99.00, resulting in a pullback toward 98.60. There was no data to give directional cues, while Wall Street was fairly steady, posting modest gains. The U.S. economic calendar has been light all week, and doesn't get much busier on Thursday, with just weekly jobless claims, and March wholesale data on the docket.[EUR, USD]
EUR took further encouragement from more ABS talk. ECB's Mersch is the latest official to confirm the ECB is looking at ways to restart the ABS market in a bid to encourage lending to SMEs. The comments echoed similar sentiment from ECB's Asmussen during the European morning after press speculation emerged overnight. EUR-USD carved out session highs of 1.3195 into the London close, which was around 50 pips higher from N.Y. opening levels and compared with 1.3090 at the European open. More offers are anticipated from 1.3200.[USD, JPY]
USD-JPY was capped over 99.00 in early N.Y. trade, as non-Japanese accounts pared back long positions after increased exporter hedging on Monday and Tuesday. Positive risk appetite has helped the JPY crosses, but yen selling has lost some its intensity. The BoJ have eased policy and are likely to digest the impact from the new asset purchase scheme before shifting again. There are also very heavy outstanding 100.00 barriers that are still intact, which has encouraged hedging from lifers and exporters that want to lock current levels. Until these flows run their course USD-JPY may be a range trade. On an intra-day basis, support was noted into 98.60. Offers are noted from 99.20-30.[GBP, USD]
Cable cleared away another round of stops after yesterday's highs at 1.5549 gave way. Speculative demand picked up ahead of tomorrow's BoE policy decision. Cable's proximity to 1.5600 raises the risk of a sustained push higher. CFTC data revealed that some positions were cut back last week, but on an historical basis there are a significant number of net shorts. Over 58k remained as of last Tuesday. It wouldn't surprise us to see another reduction in short positioning when the latest data is released and the correction could accelerate if a series of resistance levels are cleared away between 1.5640 and 1.5690 tomorrow.[USD, CHF]
EUR-CHF consolidated the European rally and later settled back in front of 1.2300 after 1.2350 barriers held. EUR-CHF was boosted by a marked pick up in topside strikes. Demand for strikes out to two weeks changed hands over 1.2300, which was the early trigger for heavy local demand out of 1.2260. Thereafter, several levels traded up to 1.2500 over a one month horizon, while the positive risk backdrop also fueled momentum after a break of resistance at 1.2310-15. Above 1.2350 there are resistance levels between 1.2370 and 1.2380, along with outstanding 1.2400 barriers.[USD, CAD]
USD-CAD remained inside of painfully narrow ranges, managing just a 1.0040-60 band since the North American close on Tuesday. Bids remained at 1.0020, with option barrier defense expected ahead of 1.0000. The risk backdrop was fairly neutral early on, and offered few leads for the CAD. Later, the pairing slipped to lows just under 1.0020, though earlier noted bids from 1.0020 supported. The CAD was helped a bit by the modest recovery on Wall Street, though talk of option barrier defense into 1.0000 strikes may limit downside from here. Besides the option interest, corporate bids were seen in place from parity as well.