2013-05-22 19:19 (UTC)
XE Market Analysis
It was a choppy day in FX Land, with most of the gyrations the result of comments from Bernanke in his JEC testimony and Q&A. The greenback faded initially, as the Fed chief indicated QE would not be tapered any time soon (which naturally took equities racing higher). Later in Q&A, Bernanke contradicted himself to a degree, saying tapering could commence in as soon as a few FOMC meetings. This resulted in stocks paring gains, and the dollar surging higher. After nearly touching 1.3000, EUR-USD faded under 1.2840 in late dealings, while USD-JPY posted new trend highs over 103.70. On the data front, April existing home sales improved, but missed forecasts slightly. Later, the FOMC minutes revealed that a number of participants expressed a willingness to adjust purchases downward as early as June if the economic data showed evidence of sufficiently strong and sustained growth. But, the minutes also revealed disagreement on the evidence needed. Also, "many" wanted to see more progress on the labor market before slowing QE.[EUR, USD]
The dollar slipped broadly following initial headlines from Fed chief Bernanke, who made it sound there would be no imminent slowing in asset purchases. Stocks popped to session highs, with major indices up better than 0.5%. EUR-USD rallied to just shy of 1.3000 from 1.2945. The pairing quickly slid lower though, again being influenced by Bernanke, who said asset purchases could be unwound over the next few FOMC meetings in Q&A. EUR-USD fell under 1.2840 in afternoon trade.[USD, JPY]
USD-JPY headed back to 103.00 into the N.Y. open amid EUR-JPY strength, which followed increased demand for the euro crosses. Meanwhile, BoJ Governor Kuroda also maintained dovish rhetoric at his post-policy meeting press conference. Kuroda said that Japan had not yet achieved strong sustainable growth and also played down the impact on JGB yields. Again though, Bernanke stirred things up with his JEC testimony, resulting in a quick dip to under 102.70, before ramping up to trend highs over 103.70.[GBP, USD]
Cable backed up a touch, leaving it close to 1.5100 as the N.Y. session got underway, and as focus turned to Fed policy. GBP experienced extended losses in the European morning after a rash of disappointing U.K. data and the BoE minutes. Cable was jerked around like the other dollar pairings during Bernanke testimony, and eventually slid to 1.5020 on general dollar strength, and a late day drop in risk appetite.[USD, CHF]
CHF slumped as the Bernanke testimony put a bid under stocks. U.S. markets rose sharply and there was follow through gains across European indices. CHF funded carry trade activity lifted EUR-CHF from 1.2580 to 1.2650, while USD-CHF whipsawed from 0.9730 down to 0.9680 and extended to 0.9770 highs. The prospect of further swissy weakness is high as SNB's Jordan also joined the chorus of dovish central bank speak today and opened the door for potential easing. However, as the CHF weakens it could reduce the SNB's need to raise the lower limit in EUR-CHF, though negative interest rates remain an option as it still battles to overcome deflation.[USD, CAD]
USD-CAD firmed up in overnight trade, though fell short of Tuesday's two-plus month high over 1.0320. The pairing managed a peak of 1.0311 into the North American open, and settled back in on either side of the figure. The calm was short lived however, as Bernanke caused a breif USD swoon lower, before reversing higher again. USD-CAD eventually took out prior 2013 highs of 1.0343 on its way over 1.0385. The rally was better than 100 points from session lows of near 1.0250.