2013-05-30 10:37 (UTC)
XE Market Analysis
Overall the FX majors extended yesterday's moves, which included dollar repositioning and a pick in the yen. The Nikkei plunged just over 5% today, which set the early tone and drove USD-JPY into 100.50. However, follow through selling was contained as European stocks were steady and this tempered safe haven activity. By late on in the European morning USD-JPY moved back over 101.00 and EUR-JPY rebounded out of 130.20 over 131.00. JPY remained sensitive to stock moves and yields, though Japanese officials played down the recent moves. Meanwhile, EUR-USD filled in offers through 1.3000 and then backed away from the topside and similarly Cable tested 1.5200 and then eased. Elsewhere, CHF benefited early on from a very encouraging Swiss Q1 GDP release, but then eased as sentiment improved over the course of the European morning, leaving EUR-CHF above 1.2450.[EUR, USD]
EUR-USD probed the topside and filled in offers between 1.2980 and 1.3000 late on in the European morning. Stops were filled behind 1.3000, but ebbed back towards 1.2985 on a lack of follow through demand. After the recent volatility there is a lack of interest to add fresh positions, though there were signs of tentative interest to buy EUR-CHF and EUR-JPY on dips as European stocks rallied. The dollar is still weaker after yesterday's correction, but fundamentally better U.S. economic fundamentals should ultimately support the dollar in the long-term as the Fed is forced to shift the policy outlook. With these risks in mind it is likely that EUR will experience limited upside, although there could be a small squeeze higher before heavier EUR selling resumes.[USD, JPY]
USD-JPY steadied after it hit lows just under 100.50. Losses on the Nikkei accelerated, leaving it 5.15% lower on the day, but USD-JPY losses were contained by support layered into 100.35, while in Europe, stocks overcame early losses and traded in positive territory, which took the sting out of safety plays. Japanese officials played down equity market moves. Chief Cabinent Secretary Suga said the stock market is experiencing a temporary adjustment, while Economic Advisor Hamada said that it was natural for stocks to move randomly at times and he was unsurprised by the move. In Asia, BoJ Governor Kuroda tried to assure markets over JGB volatility, stating that it would not ignore big swings and wanted to bring down volatility. USD-JPY will continue to trade in lockstep with stocks. Technically, the underlying trend could change rapidly if the psychological 100.00 level gave way in the coming days.[GBP, USD]
Cable is close to session highs into the N.Y. open. The dollar settled at lower levels on more repositioning and Cable threatened to break 1.5200. Activity in Europe was low compared with Asia, where moves were influenced by repositioning via the JPY crosses and more light USD selling. On Wednesday it threatened to breach long-term support at 1.5000, but option flows, corporate hedging and a dollar correction triggered a sharp reversal. There is potential for more month-end EUR-GBP demand to go through on dips, which could temper Cable momentum, though the balance of risk is skewed to a squeeze higher and a close above 1.5200 would shift the near-term picture.[USD, CHF]
EUR-CHF hit lows around 1.2420 after the European open as fund names headed for safety on more Asian stock weakness. The CHF was also supported by better than expected Swiss Q1 GDP, although most of the action today is centered around stock moves. European markets started on a better footing, which helped EUR-CHF back towards 1.2450, but real money and short term funds are more inclined to play it safe today due to the fragile market tone in Asia and a lack of fresh positioning building as we approach month-end.[USD, CAD]
USD-CAD is trading close to 1.0350 after it eased back to the 1.0330 area by today's European open following yesterday's drop from 1.0375, which followed the BoC announcement, where rates were left unchanged at 1.00% as expected, and as the Bank retained its watered down tightening bias. The statement said 1.00% rates were "appropriate for a period of time", but added, an increase is likely required later. There had been speculation the BoC would remove the bias cleaning the slate for the new incoming governor. The dollar may find support on dips after the recent correction and with equities on the backfoot USD-CAD could retest higher levels. Offers are noted from 1.0400 and into 1.0420-30.