2013-05-31 10:41 (UTC)
XE Market Analysis
Risk aversion dominated from the European open as speculation circulated that the weekend China manufacturing PMI release may come in below 50.00. JPY and CHF were the main beneficiaries as safety plays picked up. USD was net firmer, though flows were mixed, largely due to expectations of sell orders via USD-JPY related to the month-end fix, which forced a fall to 100.30. EUR-USD was unable to sustain movement over 1.3050 and sagged below 1.3000 amid good EUR-JPY and EUR-CHF weakness. Of note, Swiss data surprised on the upside again, with the KOF leading indicator beating expectations. Economic data from the eurozone probably didn't help the EUR either. Eurozone unemployment hit fresh record highs, while the German retail sales release was weak, but an acceleration in eurozone HICP is likely to keep the ECB on hold next week.[EUR, USD]
EUR-USD failed to sustain higher levels. Good fund offers over 1.3050 featured since EUR broke higher during Thursday's N.Y. session. The lack of upward momentum fueled profit taking, while a risk-off tone in Europe weighed amid EUR-CHF and EUR-JPY selling pressure. EUR-USD stops gave way through 1.3000, but bids should begin to slow the pace of the downturn towards 1.2970. Sentiment in Europe was impacted by early rumours that China's manufacturing PMI release could come in below 50.00 on the weekend, while ECB's Visco said the ECB was ready to intervene again on interest rates and wiill consider all measures to maintain credit conditions. Eurozone data included a move up in unemployment to 12.2%, while HICP inflation accelerated to 1.4% from 1.2% y/y.[USD, JPY]
USD-JPY was pressured by risk aversion and front running by interbank names anticipating large fixing flows. Large option expiries at 100.80 and 100.50 weighed into the European open and there was follow through selling as European stocks weakened. The pair looked vulnerable on the downside after support was filled in at 100.50 to 100.35 and there could be an extended bout of repositioning into the psychological 100.00 level over the London fix. A break lower would be a very negative development in the short term, though there are no signs that Japanese officials are about to pullback back reflationary policies and fund names could use any correction as a dollar buying opportunity.[GBP, USD]
Cable was relatively stable in comparison to EUR-USD. It's more positive tone was a reflection of yesterday's bullish close over 1.5200 and upbeat U.K. press reports. The government is reportedly about to inject GBP 15 bln into infrastructure projects, while the British Chamber of Commerce upgraded the U.K. growth outlook for the first time since 2008. It expects 2013 GDP to come in at 0.9% from the previous forecast of 0.6% and tips growth of 1.9% in 2014 from 1.7%. Meanwhile, there was positive data, with the latest Gfk consumer confidence reading, which improved to -22 from -27 in April, though still well below the long-term average. Mortgage lending is also picking up, supporting expectations of further house price gains. Cable started the session close to 1.5230 versus overnight highs of 1.5240, but fell away as residual month-end flows via EUR-GBP weighed on the broader sterling tone, along light dollar demand.[USD, CHF]
The CHF maintained a stable-to-firmer tone as month-end trade and choppy equity market moves limited speculative activity and kept real money positioned in favor of safety. The CHF has also had the added benefited of positive economic data. Yesterday's Swiss Q1 GDP came in on the firmer side and today's KOF leading indicator also points to more upside in the Swiss economy after it came in above expectations. EUR-CHF dipped below yesterday's low of 1.2420 and stops carried it through 1.2400 to reach 1.2380 lows.[USD, CAD]
USD-CAD recovered after it headed under 1.0300 during yesterday's N.Y. session. It idled around the 1.0295-00 region in Asia and then headed higher into the close. In Europe, movement was directly influenced by stocks, which came under pressure and weighed on CAD$, leaving the dollar pairing over 1.0350. Price action in USD-CAD has been disjointed and difficult to follow this week due to volatility across asset markets and commodities. Month-end is likely to see more of the same and note there is speculation that dollar selling could go through. Any USD-CAD upside should be viewed with caution and supply could emerge towards 1.0360-70. Natural buyers are tipped towards 1.0300 and 1.0285-90.