2013-05-07 11:01 (UTC)
XE Market Analysis
Strong German manufacturing orders stole the headlines late on in the European morning and was the catalyst for a EUR-USD move out of 1.3075 towards 1.3120. Ahead of then activity was fairly slow. The most notable feature in Europe was the break down in the CHF as EUR-CHF cleared 1.2300 and extended to 1.2335. Heavy speculative demand went through after big topside hedging influenced in the options market. AUD was another good mover after the RBA cut rates by 25 bp to 2.75% and forced AUD-USD below large option barriers at 1.0200. Elsewhere, USD-JPY found a persistent bid into 99.00 below from fund names, but exporters were a constant thorn in the side for yen bears.[EUR, USD]
EUR-USD idled between 1.3070 and 1.3090 for most of the European morning and then took off after German manufacturing orders came in much stronger than expected. The data revived hopes that German is beginning to overcome its soft patch, which fueled a EUR move towards 1.3120 and got positive momentum from gains in EUR-GBP, EUR-JPY, EUR-CHF and EUR-AUD. EUR-USD sell orders at 1.3120 to 1.3150 should counter any further demand. Fading the current rally is still likely to be the more favorable strategy after last week's ECB rate cut and the subsquent dovish policy rhetoric from Draghi on Monday.[USD, JPY]
USD-JPY was supportive throughout as positive sentiment encouraged ongoing demand on dips. It made another failed attempt to clear 99.50 offers in Asia, but any subsequent downturns were absorbed by good Japanese demand into 98.80. In USD-JPY's favour is more balanced market positioning after the recent period of corrective action, while U.S. yields remain underpinned and the BoJ are expected to maintain its policy easing stance for the foreseeable future. Note, exporter hedging was fairly heavy overnight, with movement between 99.30 and 99.50 a popular area to lock in current levels while long standing 100.00 option structures remain intact. Meanwhile, overseas investment by Japanese lifers is still more limited so far, according to anecdotal reports, with the focus on profit taking on unhedged positions. When this runs its course JPY may have a greater chance of sustaining lower levels.[GBP, USD]
Cable maintained a supportive tone following Monday's pullback from 1.5585 to 1.5520 in holiday thin trade. Demand for Cable picked up recently after a better rash of U.K. data, while recent BoE data also highlighted ongoing investor demand for gilts from overseas. Ahead of this week's BoE policy decision dip buying should continue. A steady policy hand is widely tipped this week and most are also predicting unchanged policy at least until Carney takes over from BoE Governor King on July 1. Range players are likely to buy into 1.5500 and 1.5480, which held last Friday. Note, movement into 1.5600 has met very good sell interest ahead of resistance at 1.5610, protecting a wall of buy stops.[USD, CHF]
EUR-CHF was a big mover and rebounded from 1.2255 over 1.2300. Further gains were noted after key resistance levels gave way around 1.2310-15, while there was heavy topside hedging that went through the options market, which added momentum. There was no impact from Swiss unemployment, which came in at 3.1% as expected. Most of the movement was pinned on repositioning by short term funds and specs that were encouraged by the move back towards outstanding option barriers at 1.2350. Big volumes went through the short end and the front end of the options curve to hedge levels from 1.2300 up to 1.2500.[USD, CAD]
USD-CAD triggered stops under 1.0050 into the North American open on early interest from CTAs and IMM types. The positive risk backdrop was the catalyst for more CAD$ strength and it extended to 1.0035 on U.S. and local name order flow. Further downside movement could slow due to very large outstanding option triggers, which are tipped at 1.0000. Buyers at current levels should include both corporate names and option types, but the upside will remain limited now as offers build up from 1.0080 to 1.0000.