2013-06-04 06:50 (UTC)
XE Market Analysis
The dollar held on to losses amid yesterday's unexpected weakness in the U.S. ISM reading, which dampened expectations of Fed policy tapering. EUR held on to a firmer tone close to 1.3050 and Cable traded above 1.5300. USD-JPY remained under the 100.00 level, but did see increasd Japanese dollar demand. There was some yen selling related to today's Nikkei rally, but overall the yen consolidated Monday's gains. AUD experienced a mild reaction to the RBA's decision to leave rates unchanged at 2.75% after yesterday's decent short covering rally over 0.9750.[EUR, USD]
EUR-USD consolidated Monday's gains, starting the session around the 1.3075 region, which compared to yesterday's 1.3107 high. The EUR rally was contained by talk of option related selling around the 1.3100 region, along with some EUR-cross selling. In Asia, this was mostly concentrated to EUR-AUD amid the AUD short squeeze into the RBA. USD-JPY's breakdown yesterday weighed via EUR-JPY, though it saw some bargain hunting today under 130.00. EUR should remain supported on dips due to market positioning ahead of the ECB rate announcement on Thursday, where there are expectations for a steady policy outcome.[USD, JPY]
USD-JPY regained some of its poise after yesterday's sharp sell-off over the U.S. data, which fueled an extended clear out to 98.86 lows following the break of the psychological 100.00 level. Dollar short covering lifted it to 99.40 by the N.Y. close, while in Asia there was good interest from Japanese importers on dips, which fueled a squeeze up to the 99.90 region. Ahead of the 100.00 level there was good interest to sell from specs that missed the move lower, while exporters were also noted sporadically on the way up. The Nikkei experienced another choppy session, but closed in positive territory. Japan Economy Minister Amari said FX and stock markets are in an adjustment phase and this was natural after rapid moves and expected consolidation to eventually kick in.[GBP, USD]
Cable is trading close to 1.5300 after it corrected Monday's surge to 1.5375. EUR-GBP demand from the 0.8500-05 region and profit taking via Cable left it close to option expiries levels as the European session got underway. However, GBP may have scope for firmer levels this week if other forward looking PMI data picks up pace ahead of the BoE MPC meeting. The BoE are expected to leave policy unchanged this week ahead of July when Carney will take over as Governor from Mervyn King. After yesterday's upbeat manufacturing PMI data there is construction PMI to digest today ahead of services sector PMI on Wednesday.[USD, CHF]
EUR-CHF is trading back above 1.2400 after it rebounded overnight. Into Monday's European close EUR-CHF sank from 1.2465 and eventually hit 1.2330 lows amid a plunge in USD-CHF after disappointing U.S. data dampened expectations of Fed policy tapering. The dollar pairing plunged from just over 0.9600 to 0.9409 lows, but has since stabilised over the 0.9500. This has been a supportive lead in the cross and should continue to drive movement in the short term. Of late, an underlying dollar bid has put a floor under EUR-CHF, though we still think that SNB policy expectations should keep prices relatively stable overall, regardless of dollar movement into the SNB policy meeting on June-21.[USD, CAD]
USD-CAD is close to 1.0300 following yesterday's dollar losses. USD-CAD fell from 1.0350 and reached the 1.0265 region after weaker than expected U.S. data. The move was exacerbated by stops and a reduction in speculative dollar longs. However, now that some of the excess is out of the market the dollar has steadied, which lifted USD-CAD over 1.0300 in early Europe. Today's North American session will bring April trade reports from both sides of the border.