2013-05-03 10:47 (UTC)
XE Market Analysis
The European session was dominated by a EUR-USD rebound over 1.3130 and a Cable rally from 1.5520 to 1.5570. The recovery in the EUR came after ECB's Nowotny and Liikanen clarified the ECB's positions on negative deposit rates after yesterday's remarks from Draghi. Both ECB members suggested that discussions at yesterday's meeting were not unusual compared with other meetings and remarks may have been misinterpreted. U.K. services sector PMI beat expectations and raised optimism over U.K. recovery prospects after better manufacturing and construction data this week. In Asia, China services sector PMI slowed and reinforced expectations that PBoC could do more to help the economy after a run of softer data releases.[EUR, USD]
EUR-USD regained its composure over 1.3100 following ECB speak in early Europe and ahead of U.S. NFP data. Both ECB's Nowotny and Liikanen played down yesterday's remarks on negative deposits rates, while there are expectations that U.S. NFP could come in on the softer side. Against this backdrop EUR rallied out of 1.3065 after early after buyers put a floor in place ahead of 1.3050 in Asia. On an intra-day basis if EUR squeezes up through 1.3140 it should encourage more buyers, though traders are unlikely to commit to large positions until after today's U.S. data, which will set the tone for the coming week. Note, offers are likely from 1.3160-80 and across 1.3200. On Thursday the move over 1.3200 met thick Asia account offers from 1.3220 and 1.3240.[USD, JPY]
USD-JPY benefited from cross-JPY flows. EUR-JPY rallied out of 128.10 to 128.90 and GBP-JPY was boosted from 152.10 to 152.75 on a combination of ECB speak and U.K. service sector PMI. The speculative inflows was a factor in USD-JPY's rise out of 98.00 to 98.25, though ahead of NFP the dollar is struggling to sustain altitude and option expiries at 98.00 have attracted. A weak NFP reading today could send USD-JPY back towards yesterday's support zone at 97.30-40, which protected large sovereign bids at 97.00 that are reportedly related to outstanding option positions.[GBP, USD]
GBP price action was contained despite U.K. services sector PMI coming in at 52.9 in April from 52.4 previously, which was better than expected. Cable headed to 1.5520 ahead of the release on speculation of a weaker reading, but headed back over 1.5540, leaving it unchanged since the European open. After the choppy action seen since Wednesday's session there is some reluctance to over extend positions ahead of today's U.S. data. However, we think Cable longs are still in decent shape. Today's U.K. data completes the picture on the U.K. economy after better than expected manufacturing and construction data this week. The number suggests moderate growth in Q2 and will underline expectations of a steady policy hand from the BoE. Cable looks destined to revist levels over 1.5600 based on improving fundamentals.[USD, CHF]
EUR-CHF found a modicum of support as prices settled down following Thursday's sharp price swings, which came over the ECB rate announcement and accompanying press conference. ECB's Nowotny and Liikanen have played down Draghi's negative deposit rate remarks, which has fueled some tentative EUR bargain hunting. In the cross, buyers put a floor in place around 1.2200 yesterday and it drifted back through 1.2230 today. However, the mixed equity market backdrop is likely to contain heavier EUR demand, along with more potential market chop into the weekend when NFP data is released. EUR offers should slow further gains into 1.2240-50, while 1.2300 has marked the top this week after it corrected from last week's outsized gains to 1.2349.[USD, CAD]
USD-CAD moved over 1.0120, extending the rebound from a 2 1/2 month low around 1.0050 on Wednesday. The move out of CAD$ came after Stephen Poloz was selected as the next BoC governor. He is the current President of Export Development Canada. The change in governor may invite speculation that the Bank will drop its tightening bias, or be less tolerant of CAD strength, though Finance Minister Flaherty denied that the CAD$ was a consideration in the choice of the new BoC governor. The market will be mindful of the governor designate's background at Export Development Canada, noting that the BoC has been taking a laissez-faire approach to the currency, maintaining a tightening bias even as other central banks engaged in aggressive policy stimulus.