2013-05-24 07:29 (UTC)
XE Market Analysis
Japanese market volatility dampened early interest in Europe. The Nikkei had an extremely whippy session, but ended in positive territory. It was up 3.5% early on and then plunged to sit 3% lower, but rumours of official buying lifted it higher very late on in the session. USD-JPY regained its poise after 101.00 held, but it is looking limited on the topside. EUR, GBP and CHF are relatively stable against the USD with the focus on movement elsewhere. Early European data should help European sentiment. German consumer confidence data improved and French business confidence was also higher, while German GDP met expectations. The German Ifo is due for release, but it looks likely that sentiment in stock and bond markets will drive action ahead.[EUR, USD]
EUR-USD fell back from 1.2935 to 1.2905 in early trade as some spec flows went back into USD-JPY during the Asian morning. However, USD-JPY came back under pressure as stocks fell away and this worked in EUR-USD's favour and it squeezed back up to 1.2935 late on, leaving it largely unchanged on the session. EUR continues to benefit from demand against GBP and AUD on dips. Interest against the CHF and JPY will be dependent on how risk fares over the course of the session. The macro backdrop in the eurozone is still very challenging, though currently is has not had a lasting impact on EUR stability.[USD, JPY]
USD-JPY experienced another challenging session as stocks guided sentiment. Early on it built on yesterday's N.Y. session gains as stocks made an early 3.5% rally, which fueled a move up to 102.60. There was demand noted from Japanese importers and short covering from fund names after 101.00 held overnight. However, this was shortlived as equity markets stumbled. Comments from Japanese officials on recent market volatility have not helped confidence and there are concerns over the BoJ's ability to manage the market impact in an orderly fashion. USD-JPY traded into 101.10 late on in Asia, but then chopped back up to 101.75 as stocks found support on talk of official buying.[GBP, USD]
Cable traded a tight range close to 1.5100. There was buying interest on dips, though the focus tended to come from elsewhere rather than direct GBP flows. From a big picture perspective Cable has tended to meet good buying interest into 1.5000 since the BoE highlighted the consequences of sterling weakness on inflation back in March. We think this will encourage demand from corporates, offshore investors and sovereign names on dips. Yesterday's positive close should negate some of the selling pressure, though there may be scope for more underlying USD strength on more positive U.S. data as the debate over Fed policy continues.[USD, CHF]
EUR-CHF has been supported on dips since yesterday's N.Y. session as stocks got a fillip on more encouraging U.S. data. However, movement remains choppy, with most of the action dominated by very short term flows. Where the CHF trades from here will depend on how markets perform into the weekend. There was talk during Thursday's European morning that real money were swissy buyers and they are unlikely to liquidate positions so prematurely.[USD, CAD]
USD-CAD consolidates after it reversed course after 1.0400 held during Thursday's Asian session and during the European morning. It faded to 1.0285 by the North American afternoon as sentiment in the U.S. was broadly positive overall. Stocks steadied and the dollar eased as market participants reduced Fed QE tapering bets that had become excessive in recent weeks.