2013-03-08 21:14 (UTC)
XE Market Analysis
The dollar rallied broadly after the much better February employment report, taking EUR-USD to lows under 1.2960, from opening levels near 1.3100. USD-JPY probed 3 1/2 year highs near 96.60, while cable traded briefly under 1.4900. The CAD was a rare winner today, as it took flight on the back of good employment reports on either side of the border. The 236k NFP print beat estimates handily, though equities faltered soon after the release, as talk turned to potential for the Fed to take away the punch bowl. Wall Street eventually overcame that fear however, and stocks ended moderately higher.[EUR, USD]
EUR-USD slid under 1.2960 from near 1.3100 following the better U.S. jobs report. The greenback continued to react positively to better U.S. fundamentals, moving higher with equities and Treasury yields. Pre-weekend short covering resulted in a test of 1.300 later, though sellers were quick to step back in at the figure. Fitch finally downgraded Italy to BBB+ from A-, outlook negative, knocking the euro back below 1.3000 again as low as 1.2960 on the initial knee-jerk. That speculation has been around since last week, though S&P was the focal point. Fitch said the downgrade was due to inconclusive elections and ongoing recession and it could cut Italy further if the recession deepens. Usually a downgrade is accompanied by a stable outlook, but this appears a bit more ominous.[USD, JPY]
USD-JPY bounded to a 3 1/2 year high near 96.60 after the jobs report, before pulling back to lows near 95.50. Japanese offers were reportedly heavy into the highs, though dip buyers returned under the figure, taking the pairing back toward 96.20 by later morning. Prospects for more BoJ action in early April may keep the rally alive, though in the near term, upside appears to be somewhat overdone. Consensus seems to be to continue to buy pullbacks, but downside could extend to the 95.00 region over the next couple of sessions.[GBP, USD]
Sterling managed to rebound versus the USD, back above 1.5000 into the N.Y. open, but was smashed lower after the U.S. jobs report, touching new trend lows of 1.4885. The speculative segment of the market will be running a pretty large net short position in the pound, which has potential to fuel a position-squaring rebound. It was not to come on Friday however, as the pairing was unable to rally beyond 1.4950, and closing at 1.4920. Eurogroup head, Dijsselbloem, said in a speech that a "a new sterling crisis could happen again" due to the state of public finances. His remarks won't rattle the market much as participants have for some time now been talking about the potential for a sterling crisis given the Britain's ongoing tight fiscal but loose monetary policies, along with prospects for continued relatively-high inflation and anaemic GDP performance.[USD, CHF]
EUR-CHF logged a three-week high of 1.2371 amid the improve risk appetite backdrop, driven by the better U.S. jobs report. EUR-CHF resistance is at 1.2388 (the Feb-13 high) and again at 1.2400 and 1.2406 (the Feb-4 peak). Trendline support is pegged at 1.2355, while a trend break would be signalled by a breach below 1.2300. USD-CH meanwhile surged to levels last seen in September, peaking over 0.9550. Swiss February CPI came in today at -0.3% y/y, unchanged from January, and matching the widespread expectation. The figure compares to a -0.9% y/y rate that was seen in February 2012, which underscores the impact that the currency limit peg has had in curtailing deflationary price pressures. Negative inflation rates are persisting, however, a backdrop that should ensure that the SNB remains committed to loose monetary policy and the EUR-CHF peg despite signs of economic improvement in recent data.[USD, CAD]
USD-CAD eased back under 1.0300 in early North American trade, after peaking near 1.0315 in London. Initial USD-CAD support was seen at 1.0250, with resistance at 1.0340. Barrier options remained in effect at 1.0350. The pairing subsequently slid to 1.0235 from near 1.0300 on the combination of strong employment reports from both sides of the border. Support at 1.0250 was easily breached, though bids were seen in place from 1.0220 to 1.0200. Intra day short covering helped the greenback higher into the close, with USD-CAD testing 1.0300 again.