2013-04-22 07:31 (UTC)
XE Market Analysis
FX markets have started on a quiet footing. JPY is an early mover following the G20 meeting, which backed Japan's policy stance and drove USD-JPY within a few pips of the 100.00, where heavy long standing exotic option structures are noted. This level is being well defended by exporters and there are also reports of profit take order from position traders and some fund names. EUR-USD is underpinned on developments in Italy after Napolitano was reelected for a second term as president and may increase the changes of an Italian government being formed. GBP dipped after Fitch downgraded the U.K. rating, but it should not have a lasting impact as it was widely expected. The risk backdrop was supportive in Asia, but with the exception of yen funded carry trades appetite to sell USD is not aggressive as EUR and GBP are still being weighed to a degree by poor growth compared with the U.S.[EUR, USD]
EUR-USD was supported in early trade by EUR-JPY demand, along with positive political developments in Italy. After starting the session around 1.3050 it headed to 1.3084 highs. However, it could not sustain higher levels due to offers from the 1.3100 area and there was also talk of central bank flows. EUR-JPY profit taking was also a factor into the European session. However, news that Italy re-elected Napolitano is likely to provide a modicum of support in Europe. Buyers are still layered into the 1.3020 and 1.3000 region, where central bank flows and corporate hedging featured in recent sessions. Under 1.3000 there is also support from 1.2970 to 1.2950.[USD, JPY]
USD-JPY started the session on the front foot after it gapped up to 99.70 on Friday as Japan avoided G20 criticism. USD-JPY pushed up to the 99.90 area after starting the session ahead of 99.50. Very strong offers related to long standing exotic option structures weighed and it headed to 99.65 by late Asia. Fund names are persistent buyers on dips, but there are a series of large profit take orders that are mixed in with option flows that are keeping ranges tight. EUR-JPY also headed higher and pushed up to 130.75 from the 130.00 region and then eased back towards 130.15 in the last hour of Tokyo trade.[GBP, USD]
Cable was heavy just in front of 1.5200 after Fitch cut the U.K. rating on Friday to AA+ outlook stable due to the weaker economic and fiscal outlook. Despite the cut, Fitch said that the U.K's credit profile is extremely strong and the rating is underpinned by its high income, diversified and flexible economy, as well as the high degree of political and social stability. Bias for Cable remains on the downside after it closed well below 1.5300 on Friday. Bids at 1.5200 are noted in front of good size sell stops and there is chart support noted from 1.5180. Offers are confirmed from 1.5250 and 1.5270.[USD, CHF]
EUR-CHF is supportive after it rallied to one-week highs around 1.2190 on Friday. The pick up in risk appetite and EUR-JPY demand provided a positive lead. However, EUR-USD is still struggling to sustain higher levels, largely due to poor economic fundamentals in the eurozone, which is increasing expectations of a potential ECB rate cut. This is capping EUR-CHF's ability to clear good size offers from 1.2200. USD-CHF is still being hamstrung by EUR price action, leaving it close to 0.9330 after it firmed up from 0.9275 during Friday's session. Further dollar gains should meet offers into 0.9350 and there is talk of possible reserve diversification on dollar upticks.[USD, CAD]
USD-CAD traded a tight range close to 1.0250 since the Asian open. It rallied marginally on Friday on general dollar strength, but since the BoC policy outcome it has struggled to break out of the range. Bids are noted from 1.0240 to 1.0230 today and 1.0200 is also a major support level after it held for several sessions. Offers are noted into 1.0300 and stops should feature on further USD-CAD strength. The 1.0300 level has held since early March and option barriers are also likely to be an influence around those levels.