2012-12-12 11:33 (UTC)
XE Market Analysis
Risk appetite influenced as stocks continued to trade at YTD highs in Asia and Europe in anticipation of Fed QE and fiscal cliff hopes. The Fed should not suprise. It is set to announce outright Treasury purchases by $40-$45 bln and could also extend purchases in the 5-year sector to support the mortgage market. Appetite for yield underpinned demand for AUD and NZD out of Asia, while EUR and GBP benefited from speculative activity. JPY weakness stood out on heavy JPY-cross flows and massive hedge fund demand for USD-JPY, which took it to trend highs over 82.90 before option related selling picked up. AUD moved through 1.0550 barriers and Cable cleared 1.6140 after U.K. employment continued to hold up despite weak domestic fundamentals. The market shrugged off a drop in eurozone industrial production and the positive Italian bill auction was taken as a sign that the political backdrop will not derail recent eurozone progress.[EUR, USD]
EUR-USD made steady upside progress over 1.3025, with sentiment holding up after yesterday's move over 1.3000. EUR-JPY demand was a supportive lead, though it is reaching levels, which are popular for Japanese corporate hedging. A semi official name is still selling into strength, while there are fund offers layered to 1.3040-50, which is also slowing the uptrend. There was no impact from eurozone industrial production, which was well down in October, while the Italian bill auction went relatively well considering the political backdrop. Refinancing costs fell and cover was also high.[USD, JPY]
USD-JPY traded at trend highs over 82.90 amid heavy fund demand. Appetite for AUD-JPY was also heavy and closely followed by NZD-JPY, with both currencies benefiting from pursuit for yield. The pick up in USD-JPY fueled demand for volatility as spot eyes barriers from 83.00 to 83.75. The 83.00 barrier is reportedly in very large size, though yen put hedging has been prevalent over the last few weeks and the market is gearing up for a break higher. Expiries are scattered from Friday this week and Tuesday and Friday of next week. On the chart, USD-JPY is skewed to a move through 82.94 resistance and then a retest of resistance between 83.00 and 83.15. Sources report more hedge fund demand since the Tokyo afternoon for yen puts with barriers from 85.50 to 86.00.[GBP, USD]
Cable benefited from risk appetite, which fueled a move out of 1.6095-00 in early Europe to session highs over 1.6140. GBP-JPY's rally from 133.00 to early April highs around 133.70 was a factor in the upturn. U.K. employment data was encouraging once again, which helped Cable to a five week high. Stops are tipped over 1.6150, which is close to the upper bollinger band and will be a turning point for weak shorts intra-day. Pullbacks are likely to be contained by 1.6100 expiries, which are rolling off today and tomorrow, though expect some price chop as markets digest the FOMC outcome. U.K. CBI industrials trends on Thursday is likely to be more of a challenge for GBP traders and may reaffirm triple-dip recession risk.[USD, CHF]
CHF maintained softer levels after it fell after Tuesday's European open amid SNB policy speculation. EUR-CHF took off from 1.2080 over 1.2125 after UBS confirmed it would introduce deposit fees on CHF balance from December-21, which was widely tipped last week. However, it triggered talk that SNB could introduce negative rates on Friday or raise the floor of the lower limit in EUR-CHF above 1.2000. However, we expect the SNB to maintain policy status quo on Thursday. There are no signs that capital inflows have accelerated and the situation in eurozone is better than it was earlier in the year. Recent moves by UBS and CS on CHF deposits should also deter capital inflows to a degree without the SNB having to act for now.[USD, CAD]
USD-CAD remained heavier and moved to 0.9953 lows today. Carney's reiteration of the mild tightening bias, the narrower trade deficit on Tuesday and appetite for the commodity bloc kept CAD$ supported. In Europe, short term accounts sold USD-CAD over 0.9860, but option and corporate bids were seen from 0.9850, which put a floor under the downside. Offers are layered in larger size from 0.9980 to 1.0000.