2013-05-21 10:25 (UTC)
XE Market Analysis
The dollar index posted modest gains, leaving it close to 84.00 after mixed flows during the European morning. EUR held stable close to 1.2865 after it was unable to clear offers from the 1.2900 level in early Europe. Cable headed back to 1.5170 after U.K. inflation data came in on the weaker side. USD-JPY dip buyers returned after Japan Economy Minister Amari clarified his position on FX amid speculation that PM Abe may have reproached him for his remarks on JPY on the weekend. AUD posted a moderate recovery from 0.9750 overnight after the RBA minutes gave nothing away on future policy, but macro funds faded the move into 0.9840 and it reverted to 0.9775 ahead of the N.Y. open.[EUR, USD]
EUR-USD threatened 1.2900 in early Europe. However, it was unable to progress further due to an overhang of offers and dollar dip buying versus JPY and GBP. Fund demand for euros appeared just under 1.2860, leaving recent ranges intact. There isn't much appetite to break the current holding pattern as market participants are mostly on the sidelines ahead of Wednesday's testimony from Fed Chairman Bernanke. However, a short term shift in speculative positioning could result in more potential EUR upside in the next 24 hours as some of the recent excess comes out of the market. Notably, dollar longs are at lofty levels and there has been a marked build in EUR shorts of late despite the relatively disappointing track record on the downside since the start of the year.[USD, JPY]
USD-JPY is underpinned as Economy Minister Amari clarified his FX position. It rebounded out of 102.00 and headed back to the 102.75 region today, leaving it just a short distance from recent trend highs of 103.30. Amari was forced to say that he did not know when the correction fron a strong yen would end after weekend remarks focused on the negative consquences of recent yen weakness. Market participants suspect that he was probably reproached by PM Abe. However, Amari's worries may have resonance in corporate Japan given the rising costs of imports and the pick up in JGB yields. An exclusive Reuters survey revealed about half of Japanese companies think the yen has now fallen far enough and would like it to steady around 100, while only 15% want a further decline. About one-third of survey participants want the yen to rebound from current levels and settle around 95.[GBP, USD]
GBP was toppled by U.K. inflation data. Cable headed back to 1.5170 as U.K. clearers sold from 1.5230. London names were noted on top from 1.5260 early on after offers at 1.5280 to 1.5300 capped in Asia. Headline CPI came in at 2.4% y/y from 2.8% previously, while PPI data revealed that input prices also tumbled by 2.3% m/m in April from -0.1% previously. The numbers come after last week's BoE Inflation Report saw a downward revision in the BoE's inflation forecast. Cable is trading close to levels where option related flows were noted since late last week amid reports of demand related to a large 1.5150 option strike.[USD, CHF]
EUR-CHF made a push on 1.2500 in late Asia. On Monday the balance of risk was on the topside as local names keyed off the positive daily chart and the sustained improvement in risk appetite. Buying dips is the favored strategy since the cross broke the medium term trading range around a month ago and longs still look for an extended move over 1.2500. Recent moves higher were absorbed by outstanding option barriers from 1.2525 to 1.2600, along with a marked pick up in corporate hedging. However, the underlying trend will limit corrections to 1.2450 and below in the near-term. USD-CHF moves are being influenced by speculative positioning and it has stuggled over 0.9700. We think there may scope for some corrective action, particularly with Wednesday's testimony from Bernanke in the spotlight and it could head back towards the 0.9600 region.[USD, CAD]
USD-CAD has corrected some of last Friday's gains, leaving it either side of 1.0250 after it failed to reclaim the 1.0300 level on Monday. The pick up in CAD$ reflected the improvement in the commodity market, which fueled profit taking via AUD and NZD by leverage funds. Dollar buyers were noted all the way down from 1.0270 to 1.0220, but importer demand for CAD$ provided reasonable liquidity despite a Canadian market holiday on Monday. Dollar longs are still targeting 2013 highs at 1.0343 from March-1, though there are resistance levels at 1.0320 and 1.0335 before it reaches the yearly high.