2013-05-02 10:37 (UTC)
XE Market Analysis
The European market was quiet ahead of the ECB policy outcome. Overall, the dollar held steady after it firmed up over the FOMC statement, which effectively maintained the status quo on policy. EUR dipped into 1.3150 in early trade and then edged a bit higher after eurozone manufacturing PMI was revised up. Cable moved a touch higher after U.K. construction PMI beat expectations. There is a full U.S. data calendar to digest. Data on tap today include jobless claims, Q1 productivity, March trade, and Challenger announced layoffs. In Canada, March trade data is also due.[EUR, USD]
EUR-USD is in a holding pattern ahead of the ECB policy outcome. The pair dipped from 1.3180 to 1.3147 since the European open, but edged back up to 1.3160 after eurozone manufacturing PMI was revised up to 46.7 from 47.5 previously. The market is pricing in an ECB rate cut of 25 bp today and possibly non standard measures, though there is a potential risk that the ECB do not adjust policy today. In the options market the balance of hedging has increased significantly on the downside. Heavy buying of two week 1.3000 and 1.2950 strikes went through yesterday and in Asia, while one week 1.3050 dealt in modest size and Monday strikes changed hands at 1.2935.[USD, JPY]
USD-JPY is hemmed in by two-way order flow. A large bid at 97.00 is reportedly from a sovereign name, while offers from 97.50 include short term funds and corporates. There is still varying talk on whether 97.00 option positions are active after reports of a 96.99 low on Tuesday in N.Y. Stops area building below 96.70-80 and are large through 96.50, which has fueled downside hedging in the short end of the options curve. 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 firmed up to reach highs over 1.5580 after U.K. construction PMI beat expectations. It took a big step back towards expansionary territory, with the April headline at 49.4 versus 47.2 in March. Cable is in good shape to post further gains after it briefly cleared 1.5600 during Wednesday's session. A pullback under 1.5550 in Asia met solid bids at 1.5540 and more are noted at 1.5525 and 1.5500. The policy outlook for the BoE is for a steady hand in the next few months as the economy gradually recovers. A clean break above 1.5600 could see an extended push over 1.5700 with limited resistance noted on a 1.56 handle apart from outstanding option exposure.[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.