2013-05-21 14:44 (UTC)
XE Market Analysis
The dollar index posted moderate gains to take it firmly over 84.00 and just a short distance from last week's peak around 84.25. There were mixed leads via the EUR, but overall the dollar made up ground against GBP, CHF and the commodity bloc currencies. A very thin U.S. calendar saw the focus come from macro funds, which still focused on the potential for Fed tapering, while intra-day accounts took positive guidance from bullish dollar momentum on the daily chart. Overall, the USD index was 0.5% higher, which left EUR close to 1.2850, USD-CHF moved into 0.9750 and Cable headed to 1.5125 after a weaker U.K. CPI reading. AUD and CAD generally traded in lockstep with commodities, which struggled, leaving USD-CAD over 1.0300 and AUD-USD around 0.9750.[EUR, USD]
EUR-USD threatened 1.2900 in early Europe. However, it was unable to progress further over the course of the day, with N.Y. markets also restrained for the second session. An overhang of offers were noted into 1.2900 and dollar dip buying influenced against JPY and GBP. Fund demand for euros appeared just under 1.2850, 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.[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 102.90 region by the time the N.Y. session got into full swing, 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. Selling yen on upticks is still the favored strategy, but momentum is being contained by good exporter offers and light profit taking. The BoJ's two-day policy meeting started today, but no change in policy is expected. Yen bears will want to see BoJ Governor Kuroda back up the current policy stance with more dovish rhetoric, though the intensity of yen selling may be more limited as no surprises are anticipated.[GBP, USD]
GBP continues to underperform amid the weaker than expected U.K. CPI reading. Cable filled in bids around 1.5130-40 after several U.K. clearers ran stops under 1.5150. Losses extended to 1.5125 before sovereign names put a floor in place. The weaker CPI data raised expectations that the BoE could see inflation come back to target quicker than it anticipated and would be a welcome development for Carney when he takes over as BoE Governor in July.[USD, CHF]
EUR-CHF made a push back over 1.2500 during N.Y. after good USD-CHF demand went through. The overnight correction in the dollar ran out of steam and enabled USD-CHF to head back over 0.9700. Buy stops were triggered at 0.9720-30 and fueled a run on 0.9750, which provided positive momentum for EUR-CHF, which headed back to the last week's highs around 1.2525. USD-CHF looks poised to break out on the topside if resistance at 0.9765-75 gives way, but EUR-CHF may meet supply related to outstanding option barriers from 1.2550 and corporate hedging activity.[USD, CAD]
USD-CAD longs eye further upside after the rebound out of Monday's 1.0217 lows. The correction from Friday's 1.0313 highs ran its course as the USD reasserted itself, while there was negative leads for CAD$ from other commodity bloc currencies as selling pressure picked up with commodity market weakness. Longs are targeting 2013 highs at 1.0343 from March-1, though importer demand for CAD$ will rise. This was evident in USD-CAD's move into 1.0320 resistance and there is more traffic up to 1.0335, which is a previous top ahead of the 2013 peak.