2013-04-24 10:55 (UTC)
XE Market Analysis
The dollar and yen ended the European morning on an easier footing as stock markets continued to pin their hopes on central bank stimulus, which offset more weak German data. EUR dropped to 1.2955 after a much weaker than expected German Ifo, but ended the session over 1.3000 on very heavy EUR-CHF demand, speculative interest for EUR-JPY and heavy Asian central bank USD selling in favor of EUR and AUD. Cable climbed over 1.5280 after demand related to two large dividend payments was tipped under 1.5240. USD-JPY made another attempt on higher levels, but was unable to clear deep offers related to 100.00 barriers. Other data included an unexpected dip in the U.K. CBI retail sector survey, while mortgage approvals rose. In Italy, today's debt auction saw record low yields in the short end and the 10-year linker also saw a fall in refinancing costs.[EUR, USD]
EUR-USD hit session lows around 1.2955 following the weak German Ifo data. Stop losses were evident through 1.2970 support, though the pair has backed up as strong bids underpinned at 1.2950. The data will add to expectations of an ECB rate cut and should reinforce EUR selling pressure on upticks. The downside is likely to see a build of support on the approach of the 200-dma at 1.2936 today, while Asian reserve management flows have been particularly active this week and contributed to the narrower trading band. The EUR move lower was also against the grain of risk appetite, which continues to benefit on central bank stimulus hope. Note, that JPY and CHF supply on upticks effectively offset USD buying against the EUR, while there was also strong demand from an Asian account, which lifted EUR-USD back over 1.3000.[USD, JPY]
USD-JPY headed back over 99.70 after the London open on early interbank demand. Japanese name bids underpinned into 99.20 in Asia and this encouraged long position building by short term funds. Movement over 99.70 was restrained once gain by profit take order and sales related to large outstanding 100.00 barriers. Price action is likely to remain choppy right into Friday's BoJ policy decision. The bulk of expiries roll off on Thursday, but one large macro name reportedly sold Thursday strikes at 100.00 and bought Friday strikes in USD 3 bln, which suggests that a very large barrier is likely to be place until then.[GBP, USD]
Cable was supported on dips amid talk of demand related to U.K. dividend paymenst. Two U.K. heavyweights are reporting earnings today and early next week, which put a floor in place. Sources suggest flows may have been going through since the start of the week and have been evident since today's European open. The pick up in global risk appetite is weighing a touch on the dollar tone, while EUR-GBP heaviness in front of 0.8500 is also positive for Cable. We still think Cable is more likely to meet selling pressure on upticks as U.K. data is still relatively weak in some areas of the economy. However, there is still optimism that the economy will gradually approve and the BoE should also provide further stimulus via QE later in the year after it announced an extension of the existing Funding for Lending Scheme today, which was widely expected. Cable bids are noted at 1.5225-30 and 1.5200, while offers lie in front of 1.5300, where buy stops are noted.[USD, CHF]
EUR-CHF overcame early local name selling ahead of 1.2300 and burst higher to trade into 1.2320, which were its best levels since March-15. The move higher cleared away option barriers, which were set to roll off today, along with large plain vanilla strikes. EUR-CHF posted its biggest one day rally since the middle of March on Tuesday after it surged on speculation that SNB could raise the lower limit on EUR-CHF to 1.2500 from 1.2000. The talk added traction after EUR-CHF cleared resistance between 1.2220 and 1.2250 on Tuesday. There was speculation that decent interest to sell CHF in favour of gold went through, along with a U.S. account buy recommendation in USD-CHF. Recent SNB commentary does not suggest an imminent change in the CHF cap, but Monday's SNB monthly data highlighted a rise in non-residential deposits in January and February.[USD, CAD]
USD-CAD continues to trade very tight ranges. A pick up in risk appetite weighed a touch overnight and it drifted back to 1.0255 from 1.0270. Overall, there is no appetite to break the range. The technical backdrop is supportive, but the churn in global risk appetite is driving movement at the moment. Bids remain from 1.0240 to 1.0230 and then front of 1.0200, while offers are seen from 1.0280 and into 1.0300. Stops are reportedly fairly heavy in size above the figure.