2013-05-02 06:54 (UTC)
XE Market Analysis
The dollar was steady in Asia after it firmed up over the FOMC statement, which effectively maintained the status quo on policy. EUR remained close to the 1.3180 area in Asia as most accounts were unwilling to commit to large positions ahead of today's ECB policy outcome. JPY was supportive, leaving USD-JPY close to the 97.00 region and looks vulnerable as more position unwinding went through with stocks lower and the BoJ minutes largely in line with expectations. AUD-USD extended yesterday's correction to 1.0225 after a downward revision in HSBC's final China manufacturing PMI reading, which came in a notch lower at 50.4 in April from the flash reading of 50.5 and compared with 51.6 in March. Australia March building approvals were also very weak at -5.5% m/m sa from +3.1% previously.[EUR, USD]
EUR-USD is effectively in a holding pattern as the focus now turns back to the ECB policy outcome. Ranges remained tight close to the 1.3180 area early on and it drifted a bit lower into the European open as the risk off theme in Asia encouraged light dollar bids following Fed policy status quo. The market is pricing in a 25 bp cut today and the potential risk is the ECB do not go far enough to appease the doves and could clear out resistance between 1.3285 and 1.3320. However, we do not think Draghi will want to see the EUR appreciate any further and given the recent data it is likely the ECB will do something and back it up with more dovish rhetoric. Given current market positioning, EUR could be trading back around the previous consolidation zone either side of 1.3000 by the time the NFP is released on Friday.[USD, JPY]
USD-JPY continued to trade in close proximity to the 97.00 region, where very strong bids have been tipped. Both option related flows and central bank activity was mooted over the last 24 hours, which kept very large sell stops intact lower down. A break through 96.80 is expected to see a flood of position unwinding, which could accelerate on a negative close. There has been short dated hedging against this risk, with strikes changing hands into 96.50 and below. Projections from technical watchers suggest a move into the 96.30 area and potentially the bottom of the recent range at 95.75-80 from April.[GBP, USD]
Cable pulled back below 1.5550 after it reached 1.5606 intra-day highs in N.Y. on the bout of dollar selling, which came after weaker U.S. data. The as-expected FOMC outcome saw the dollar back up a bit, but there is rising risk for more sterling strength. The technical backdrop is supportive and the BoE are widely expected to leave policy unchanged today.[USD, CHF]
EUR-CHF reverted to lower levels after it was unable to sustain yesterday's move up through 1.2260. There was a reluctance to run long positions with the risk backdrop weak and ahead of today's ECB outcome. U.S. data was mixed again and a revision in China PMI overnight also underlined growth concerns, which fueled swissy demand on dips. EUR-CHF buyers are noted into 1.2200, but an ECB rate cut today could tip the cross back towards the 1.2160-70 area.[USD, CAD]
USD-CAD held on to the 1.0050 levels and headed back towards 1.0090 in Asia on risk aversion. Bids at 1.0050 have held and are related to corporate activity and outstanding option barriers. Stops are likely underneath 50, though interim support is noted at 1.0020 from there, ahead of barrier options at the parity mark. Offers are seen into 1.0100 through 1.0120, with stops above.