2013-05-28 07:29 (UTC)
XE Market Analysis
Risk appetite improved in Asia as Japanese markets experienced a steadier tone, though the JGB market continues to come under scrutiny amid a lacklustre bond auction and rising yields. Various Japanese officials have assured markets that the BoJ will be able to ensure stable conditions. However, ongoing bond market uncertainty could destabilise sentiment in FX and stock markets. Meanwhile, EUR and GBP support on dips is being offset by underlying USD strength as improving U.S. fundamentals keep Fed policy in the spotlight. Bernanke admitted last week that it could decide to taper QE in the coming months if data continued to improve. There is a relatively quiet data/event calendar from Europe and the U.S. today, which should leave the focus on risk and underlying macro themes.[EUR, USD]
EUR-USD found a modicum of support on dips as the weaker yen tone eventually guided EUR-JPY higher. Early on, USD-JPY's rally knocked EUR-USD from 1.2835 to 1.2885, but it squeezed higher in part on the cross flows and also short covering via the commodity bloc currencies. EUR-USD is still looking mixed at current levels. Longer-term market positioning still argues for selling into strength, but it has not sustained lower levels and if risk appetite can remain positive it may test offers towards 1.2960 and into the 1.3000 region over the course of the European and U.S. session.[USD, JPY]
USD-JPY headed higher on solid importer demand, while short term accounts took encouragement as Japanese stocks gained a foothold in positive territory. The dollar pairing was boosted from the 101.20 area and headed just over 102.00 by late Tokyo trade, which provided a positive lead for the JPY crosses. EUR-JPY added a big figure to trade at 131.80, while AUD-JPY also burst higher to trade out of 97.30 to the 98.40 region. USD-JPY is looking more stable now after it held very strong support at 100.50-60 in recent sessions and there is likely to be more interest to run long positions against this backdrop. Sellers around 102.00 have included exporters, while there is still some residual interest from offshore funds that are fading moves.[GBP, USD]
GBP-USD is hovering over the 1.5100 region after it failed to sustain higher levels in thin holiday trade on Monday. Working against the Cable upside is underlying dollar strength, though we suspect that market positioning will limit downside GBP downside potential is the coming days. CFTC data revealed excessive GBP short positioning, while movement on a 1.50 handle usually brings out long-term hedging. We think the bias for sterling may be for moderate gains this week. 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 as stock markets steady. EUR-CHF is trading close to 1.2500 after it found buyers ahead of 1.2400 in thin trade on Monday, while USD-CHF also headed back to the 0.9700 versus 0.9600. 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. However, we think these type of accounts will wait for a few more sessions before reducing positions and if there is any further 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. After failing to breach 1.0300 on Monday it headed back to the 1.0365 region today. During Monday's 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. However, the USD's recent failure to clear 1.0400 barriers is pointing to a potential near-term top and supply should pick up on further upside movement.