2013-06-04 10:33 (UTC)
XE Market Analysis
Movement in the FX market was influenced by light repositioning and fresh macro bets following the RBA outcome and ahead of key policy decisions later this week. The dollar consolidated below Monday's lows overall. EUR maintained a stable-to-firm tone, with the ECB seen on hold on Thursday and this guided movement via the crosses and underpinned EUR-CHF, EUR-JPY and EUR-GBP on dips. Cable held a tight range close to 1.5300 due to cross flows and did not get much lasting benefit from better than expected U.K. construction PMI. USD-JPY was boosted back over 100.00 as the Nikkei benefited on reports that PM Abe will make changes that will encourage Japan's national pension fund to invest more in overseas asset as of a growth stategy set to be announced this week. Meanwhile, AUD was under pressure throughout after RBA left rates on hold and kept the door open for more easing if needed. There was no new information to trade off, but the recent build up of Aussie negatives fueled fresh short position building after Monday's short squeeze.[EUR, USD]
EUR-USD was supported throughout and theatened offers from 1.3080 to 1.3100 in Asia and Europe. However, the topside held in relatively light trade. A thin data calendar saw intra-day accounts look to stocks for guidance. However, in Asia it was a mixed session and European indices struggled, which capped the EUR-CHF and EUR-JPY upside. EUR-USD got positive momentum from EUR-GBP, while EUR-AUD rallied to 1.3550 from 1.3420 at the European open and compared with overnight lows of 1.3375 as AUD came under pressure after the RBA left rates unchanged at 2.75%, but left the door open for more easing if needed. The near-term bias for EUR-USD should remain on higher levels as the dollar works off some of the recent froth and market participants position for a steady hand from the ECB on Thursday. Another test of levels over 1.3100 looks likely intra-day.[USD, JPY]
USD-JPY broke back over 100.00 and extended to the 100.40 area after Monday's clear out to 98.85. The move lower was heavily influenced by stops as macro funds cut dollar longs. However, Japanese importers were aggressive buyers at the lows and were active in Asia. Japanese stocks also benefited from talk that the government growth stategy could be announced as early as tomorrow and could include measures that will encourage more oversea investment in stocks and bonds from Japan's national pension fund, which has assets over $2 tln. Specs were encouraged by the news, though this is likely to be more of a longer-term impact on market flows. On an intra-day basis, option strikes at 100.00 could attact. A lot of strikes have also traded between 99.50 and 100.00 for the next two-to-three sessions and could see more of a rangebound trading tone persist following Monday's price swing.[GBP, USD]
Cable edged back across 1.5300 after U.K. construction PMI reached its best levels since October 2012, adding to recent evidence that the U.K. economy is improving. However, Cable movement around 1.5300 remained relatively slow today following yesterday's pullback from 1.5376 rally highs. EUR-GBP corporate flows ahead of 0.8500 weighed on the Cable topside and the cross extended over 0.8550 from 0.8525 in early Europe today. However, GBP may have more upside potential in the next 24 hours. Tomorrow's U.K. services PMI should point to further expansion and represents a much greater share of GDP growth. The better U.K. data of late should keep the BoE on hold this week and will be BoE Governor King's last MPC meeting before Carney takes over in July.[USD, CHF]
EUR-CHF headed back over 1.2400. The move higher in the cross mirrored EUR demand elsewhere and it traded up from 1.2390 in early Europe to reach 1.2430. The cross plunged from 1.2465 to 1.2330 amid very heavy dollar selling after the U.S. ISM disappointment, which knocked USD-CHF from over 0.9600 towards 0.9400. It has also corrected to the 0.9500 area and helped the EUR-CHF tone, though it has also see flows of its own out of Frankfurt and Zurich from specs and light corporate flows. Short term indicators are positive after the sharp reversal, though USD-CHF movement and risk appetite will determine intra-day direction amid a relatively light data calendar today.[USD, CAD]
USD-CAD headed back to the 1.0330 region, back inside the familiar range, after it was unable to sustain yesterday's brief break of range. USD-CAD fell from 1.0350 and reached the 1.0265 region after weaker than expected U.S. data. However, the move was exacerbated by stops and a reduction in speculative dollar longs. Now that some of the excess is out of the market the dollar has steadied and USD-CAD looks likely to resume the recent dip buying strategy. Near-term offers should slow the upside towards 1.0360-70, and the 1.0400 area is still congested with order flow. The focus for today's North American session will come early on from April trade reports from both sides of the border and then stocks will drive short term flows.