2013-05-01 10:13 (UTC)
XE Market Analysis
The dollar weakened into the FOMC outcome, which lifted EUR to 1.3200 and Cable headed towards 1.5600. With most of Europe and Asia out for today's Labour Day holidays short term accounts keyed off the short term trend which was biased to further dollar weakness after Tuesday's plunge. The risk backdrop was difficult to gauge given the absence of so many markets today, but China manufacturing PMI weakened, which led to modest losses across the commodity market complex. However, the FTSE 100 posted a decent 0.6% rally after U.K. manufacturing PMI improved in April.[EUR, USD]
EUR-USD rallied to 1.3200 as intra-day accounts were tentative dollar sellers ahead of the N.Y. session, where the FOMC outcome will be the main focus. Bias was with the EUR upside after it broke through large offers on Tuesday. Buyers since the London open have mainly been interbank types that were long while 1.3150 held and there was interest from model funds in the 1.3180s and 1.3190s. Volumes are much lower than usual with most large accounts sidelined given the central bank policy meetings due in the next two sessions, as well as today's Labour Day holidays in most of Europe. Option expiries at 1.3200 could slow movement from here, while there is a build up of resistance from 1.3215 to 1.3225 that could be a potential near-term top.[USD, JPY]
USD-JPY edged over 97.65 on Tokyo name demand and EUR-JPY buying interest. The cross made it back to the 128.90 region from 128.00 at the London open after 127.80 held overnight. USD-JPY is looking a little vulnerable after it threatened the 97.00 region in the last 24 hours or so. There are several reports of an outstanding 97.00-104.00 option structure despite 96.99 dealing during yesterday's N.Y. session. It is possible that a range binary option is still alive and price action does support reports of option related activity. Note, that downside hedging went through in Asia, with 96.50 dealing in over USD 500 mln.[GBP, USD]
Cable headed to 1.5590 highs after good Middle Eastern demand went through ahead of the U.K. manufacturing PMI release, which came in at 49.8 in April versus a revised 48.6 reading in March. Cable was primed for further gains after it extinguished 1.5550 barriers during Tuesday's N.Y. session as the dollar headed lower and after the recent shift in the underlying tone. Last week's better than expected U.K. GDP reading priced out BoE policy stimulus in May June. Some forward looking U.K. data is still soft, but there is growing optimism that the U.K. economy will gradually recover. Bias is on a near-term test on 1.5600 barriers, which have capped the initially upturn, but look vulnerable with the BoE likely to remain on hold tomorrow.[USD, CHF]
EUR-CHF experienced a short covering rally in thin trade. Bids at 1.2230 held and buying picked up from the London open. USD-CHF found support just under 0.9300 and EUR-USD's stable tone fueled a run up towards 1.2265. Offers from 1.2270-80 limited further gains, with appetite for risky positions limited ahead of the FOMC outcome and tomorrow's ECB policy decision.[USD, CAD]
USD-CAD remains heavy after registered its weakest levels since April-11 on Tuesday at 1.0055. CAD$ had been on the front foot this week, with stocks holding firm and commodity markets recovering. Yesterday's firmer Canadian GDP reading generated momentum through corporate backed dollar bids, though we are in territory where order flow is expected to pick back up again. There are a lot of bids from into the 1.0050 region and it wouldn't be a surprise to see option related demand pick up lower down due to knock out exposure between 1.0050 and the psychological 1.0000 level. Since Monday's close 1.0125-30 offers have capped.