2013-05-27 07:50 (UTC)
XE Market Analysis
The European market started on a tentative footing after Asian stock markets were mostly lower, led by a sharp drop in the Nikkei, which was hit by profit taking and a stronger JPY after BoJ Governor Kuroda said Japan could cope with higher interest rates. The Hang Seng managed to carve out small gains, but China has indicated that it would tolerate weaker growth adding to the pressure on Asian markets. Commodities have been adversely effected by the defensive tone across markets and oil prices are slightly lower. Gold is the outlier though as a flight to quality lifted it back towards $1395 from overnight lows around $1382.50. Markets are likely to be on the quiet side in Europe, with the U.S. as well as the U.K. on holiday today. Released overnight, U.K. Hometrack house prices rose 0.4% m/m and 0.4% y/y, the second month with a positive annual rate and up from 0.2% y/y in April. The European calendar has ECBspeak from Asmussen. Eurogroup head Dijsselbloem visits Lisbon and Germany and France sell bills.[EUR, USD]
EUR-USD was hemmed in a 25-pip range centered around 1.2925. The 20-day moving average at 1.2932 offers near-term resistance, ahead of 1.2950 and the 1.3000 level. The risk-averse backdop that was seen last week exerted a bearish influence on the pairing via general USD support, and more of the same may be seen this week should risk-off phase persist. Key downside levels are pinned at 1.2915 (Friday's low) and 1.2910, with technical odds favouring a return to the 1.2850 area.[USD, JPY]
JPY is slightly higher as some of the magic of "Abenomics" continues to fade, though JGB yields did to stabilized and drift slightly lower today in a sign that the correction in Japanese equity markets, after an excessive bull run, will in itself serve to calm JGB markets. The minutes of the BoJ Apr- 26 meeting, released today, also revealed a split was developing at the board, as "a few" members opposed the 2% inflation target while arguing for more flexibility. USD-JPY was settled around the 100.95 mark in late PM session in Tokyo, near to Friday's New York closing levels. Technical support is seen at 100.66-70, which encompasses last week's low, while the 100.00 level is considered a major support level having (approximately) marked a series of range highs during April (below eventually being broken in May). EUR-JPY was also steady today.[GBP, USD]
Cable is on a stable footing ahead of 1.5100 after it posted a moderate short covering rally on Friday. It headed up to the 1.5140 region into the European open and is relatively stable in quiet trade. The scope for further gains today is likely to be low though due to a U.K and U.S. holiday. However, as the week progresses there may be positive leads from U.K. data, which is expected to affirm that the economy is showing gradual improvement. The technical backdrop is also positive after last week's failure to flush out key support at 1.5000 and it should turn back towards near-term resistance from 1.5175 from last week's daily top on Wednesday and then a build up of short term offers from 1.5200-20.[USD, CHF]
The CHF has eased up a bit as European stock markets firm up, though appetite for speculative positioning is still fairly low after Asian market losses, along with a lack of market participation in the FX space in Europe with the U.K. and U.S. closed for public holiays. EUR-CHF is trading in the low 1.24's after it found buyers ahead of 1.2400, while USD-CHF is tied around 0.9600 versus overnight highs around 0.9640. The CHF was one of the beneficiaries of last week's meltdown on the Japanese stock market as real money names piled back into safety plays. We think they will wait for a few more sessions before reducing these positions and if there is swissy supply it is more likely to be from short term leverage accounts rather than long term money.[USD, CAD]
USD-CAD threatened support at the 1.0300 level after CAD$ edged higher with other commodity bloc currencies in early Europe. The pick up in demand was in lockstep with European equity market firmness and the risk backdrop will determine whether CAD$ can sustain these gains. Last week the USD made a run on the 1.0400 region, but after several attempts higher it failed to breach option barriers at 1.0400, which is beginning to look like a potential near-term top. USD-CAD could retrace more of the recent uptrend and head towards 1.0250, where relatively good support kept the downside in check early last week.