2013-05-27 19:51 (UTC)
XE Market Analysis
It was a pretty quiet start to the week what with both the London and New York centres closed today. EUR-USD nudged slightly higher in quiet London-less trade, gaining about 30 ticks on Friday's New York closing level. The move came as European stocks managed to ignore the 3.2% closing loss of Japan's Nikkei. Market participants have had more time to think since last Thursday's outburst of volatility in Japanese, and seemed to take into account that Japanese stocks were perhaps ripe for a correction a after massive year-to-date rally (+46% at last Wednesday's peak), while there was also a calmer tone in the JGB market today, with yields settling lower. USD-JPY was settled around the 101.00 mark lacking directional bias. GBP-USD edged out a six-day high of 1.5156 in very thin London-less trade. AUD and NZD both saw modest pressure against the USD during the Asia session before recovering somewhat after the European open.[EUR, USD]
EUR-USD nudged slightly higher in quiet London-less trade, gaining about 30 ticks on Friday's New York closing level. The move came as European stocks managed to ignore the 3.2% closing loss of Japan's Nikkei. Market participants have had more time to think since last Thursday's outburst of volatility in Japanese, realizing that Japanese stocks needed a correction a after massive year-to-date rally, while there was also a calmer tone in the JGB market today, with yields settling lower. Meanwhile, Chinese Premier Li was in town (in Germany) where he sadi that "we earnestly hope that the EU resolves these temporary difficulties, and we hope that the euro area can remain stable." Germany and France are on Tuesday also scheduled to announce "New Deal for Europe" details, which is a joint proposal to tackle youth unemployment, a measure that may involve the European Investment Bank "leveraging" EUR 6 bln euros, according to Bloomberg.[USD, JPY]
USD-JPY settled around the 101.00 mark lacking directional bias, and JGBs settled after last week's volatility. A spike in JGB yields last week, a consequence of the hyper-inflationary "Abenomics" policies, was the principal catalysts that sparked the sharp drop in Japanese stocks last week. 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. BoJ's Kuroda today also downplayed the rise in JGB yields, pointing to a recent study that said Japan would cope with higher yields. This backdrop suggests that technical support at 100.66-70, which encompasses last week's low, may go untested for now. Stops are reported under 100.60, while Japanese importer bids are see from 100.50. Exporter offers are likely into 101.00.[GBP, USD]
GBP-USD edged out a six-day high of 1.5156 while EUR-GBP was steady around near one-week range lows at 0.8550. Trade was of course hyper thin in the absence of London. We think the bias for sterling may be for moderate gains this week. We have seen some research notes pointing out that the second release Q1 GDP data, released last week, was negative for the outlook as it showed that the 0.3% q/q was dependant on inventory building. However, we would argue that the recent survey evidence is more encouraging with regard to domestic and external demand, while the unusually cold and persistence freezing weather conditions seen during Q1 produced a notable drag in manufacturing and service sector. The technical backdrop is positive after last week's failure to flush out key support at 1.5000. Near-term resistance is noted at 1.5175, from last week's high.[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 maintained the recent range overall. It threatened support at the 1.0300 level in Asia and early Europe after CAD$ edged higher with other commodity bloc currencies. 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. During the North American session CAD$ was weighed by speculation that deceleration in credit growth might allow the BoC to ditch its tightening bias at this week's announcement, clearing the slate for the incoming governor on June 3. USD-CAD firmed over the 1.0340 area after support held, but never tested Friday's high at 1.0356. Recent failure to clear 1.0400 barriers is pointing to a potential near-term top and supply should pick up on further dollar upside movement.