2013-04-25 10:24 (UTC)
XE Market Analysis
Sterling was the big mover in Europe after preliminary U.K. Q1 GDP beat expectations and triggered a Cable rally from 1.5290 to highs over 1.5450. The rally was exaggerated due to analyst expectations, with the majority citing downside risks to the release. EUR-USD got positive momentum on the way up to 1.3075 from the Cable upturn, along with comments from Germany's Merkel, who preferred higher rates for Germany. ECB's Asmussen confirmed that ECB has no exchange rate target and said interest rates too low for too long can lead to distortions. Meanwhile, USD-JPY struggled as longs reduced positions ahead of tomorrow's BoJ policy announcement, leaving it close to 99.00. EUR-CHF consolidated gains after it met option related offers into 1.2350 barriers.[EUR, USD]
EUR-USD rallied with Cable to trade out of 1.3035 to 1.3075. EUR-GBP plunged from 0.8530 through 0.8460, but buyers underpinned ahead of 0.8450, which helped the EUR tone. There was also demand related to comments from Merkel, who said she would prefer higher rates for Germany, and generated momentum through stops above 1.3075. However, there are still a decent build up of offers of offers into 1.3100 that should keep the topside in check. Risk appetite today is also more contained as upside momentum in European stocks is limited and yields in Spanish and Italian bonds.[USD, JPY]
USD-JPY came under pressure from pre-BoJ repositioning, leaving it close to 99.00. Since the Asian session USD-JPY has struggled to sustain movement over 99.50 as funds reduce long positions ahead of tomorrow's BoJ announcement. Today's Tokyo fixed also saw much larger volumes than usual, with corporate hedging going through ahead of the forthcoming Golden Week holidays, which could compromise liquidity. The scope for surprise at tomorrow's BoJ announcement is low given that the new program was only announced in early April. The BoJ should reiterate its commitment to meeting the 2% CPI goal and also allay fears over JGB volatility. One particular negative is weekly MoF flow data, which continues to show little sign of increased Japanese demand for foreign bonds, reducing a potential source of yen weakness.[GBP, USD]
GBP surged on better U.K. GDP data. Cable jumped from 1.5290 over 1.5400 after preliminary Q1 GDP came in at 0.3% q/q from -0.3% q/q in Q4. The ONS said that cold weather had little overall impact, while industrial output was boosted by the bounce back in North Sea oil. The number is a surprise in the respect that market participants were quite pessimistic on the U.K. economy. The number will be welcomed, but the BoE are still expected to provide more stimulus when Carney takes over as governor on July 1st. Meanwhile, PIMCO's Amey believes the BoE will do more stimulus and said that the FLS is not enough. Cable is now close to today's option expiries at 1.5400 and 1.5450.[USD, CHF]
EUR-CHF stalled ahead of 1.2350 barriers and headed back to the 1.2325 region as early selling pressure went through. Interest is noted mainly from local names and one standout German account, though the underlying tone is still skewed to higher levels. The topside break on Tuesday over 1.2250 fuels buying interest on dips. However, the increased move out of the CHF is being exacerbated by speculation that SNB will raise the lower limit in EUR-CHF from 1.2000 to 1.2500. SNB policy rhetoric does not suggest that this is in the pipeline and upward momentum may run out of steam once this risk passes. From a technical perspective the cross is more likely to challenge previous tops from early March just ahead of 1.2400 barriers.[USD, CAD]
USD-CAD headed lower after it was unable to break the top of the recent range. Decent gains across the commodity market complex was the catalyst for CAD$ strength after mixed leads from global equity markets. It headed through support at 1.0240 in early Asia and extended to the 1.0230 region by the close. More bids are tipped at 1.0220 and into 1.0200, but prices are already backing up as the dollar found a modicum of support in early European trade.