2013-01-07 07:18 (UTC)
XE Market Analysis
The dollar was supported overall as the risk rally was still contained after Friday's tepid Wall Street performance, which followed the in line NFP release. After the excesses in recent sessions speculative accounts moved to the sidelines and this was reflected via mostly flat regional stocks and narrow movement across FX. JPY also edged higher and mirrored a modest correction in Japanese equity markets as profit taking went through. It was a quiet session for economic data, but Japanese policy rhetoric continued to suggest a 2% inflation target. The press also said the size of the 2012 supplementary budget would be Y12 tln to Y13 tln, which compared with previous expectations of Y10 tln. In the eurozone, France's Hollande will reallocate EUR 2 bln from its 2013 budget to finance state-aided job creation.[EUR, USD]
EUR-USD briefly trade under 1.3000 during Friday's European morning, but saw no follow through due to good support from reserve managers and bargain hunting after 1.2980 held. A short squeeze during the N.Y. session took it above 1.3080, but range players and position traders have sold the rally, which is in line with the moderation in risk appetite. EUR drifted as low as 1.3030 after EUR-JPY sell-interest went through. There is likely to be another test of the 1.3000 region, but if 1.2980 holds again then it should confirm that EUR is still in a range trading pattern.[USD, JPY]
USD-JPY made an attempt on higher levels, but there was no ambition to significantly add to recent positions and profit taking was the dominant theme. It pulled back from 88.35-40 and tripped light stops through 88.00 and extended to 87.75. JPY-cross selling was evident on upticks, which saw EUR-JPY pullback from just over 115.50 to 114.80 and AUD-JPY fell from 92.80 to 92.11. There was speculative demand on dips, but with Japan's Nikkei also under pressure intra-day accounts did not run positions for long. Japanese rhetoric was largely in line with comments made in recent weeks, but due to the size of speculative positioning movement was much more limited. A Nomura research piece generated some attention after it decided to book profit on the recent USD-JPY long. It was the first bank to make aggressive calls for yen weakness, but said that the 2% inflation target is now priced in after the 12% yen fall on a trade weighted basis in the last three-months. It said that higher rates were also likely to fade in the U.S. and noted that some Japanese policy makers have expressed comfort with a 85-90 range for USD-JPY.[GBP, USD]
Cable met selling pressure on upticks after Friday's rebound out of 1.6010 to 1.6080. Range players are still likely to buy back sterling ahead of the psychological 1.6000 region and both corporate hedging and reserve management flows are likely to be prevalent on dips. However, the technical backdrop has shifted to softer levels in recent session after a series of negative closes. The caveat is of course lower than average volumes and disjointed cross-market moves that is often a feature of New Year trading.[USD, CHF]
USD-CHF extended gains to trade at 0.9300 on Friday, which are its best levels since December-12. The move was a symptom of the moderation in risk appetite as markets reassessed the U.S. fiscal cliff deal. There is also some uncertainty still surrounding the eurozone outlook despite the recent narrowing in yield spreads. The pick up in the dollar has fueled reserve management rebalancing and sellers are camped across 0.9300 and at 0.9330, which have capped. On the downside support is anticipated into 0.9230 and 0.9200. At current levels the tone is neutral.[USD, CAD]
USD-CAD traded at much lower levels on Friday after the stronger Canadian jobs data. Longs that played the move up through 0.9920 got caught offside after it plunged to 0.9850. Stops were filled on the way down through 0.9850 before buyers returned. It closed out the North American session at 0.9880, but the downturn has damaged the recent uptrend and should fueled selling pressure on upticks. The strong December employment report was also supportive of the BoC's mild tightening bias, leaving an upbeat hiring trajectory in place since August and also a CAD$ positive.