2013-05-08 10:14 (UTC)
XE Market Analysis
Sentiment in Europe was positive as stocks benefited from yesterday's firm Wall Street close and healthy China data in Asia. This weighed on the dollar, yen and swissy. European markets were also encouraged by reports that claimed the ECB is considering buying ABS from southern European banks to free up their balance sheets for loans to SMEs in a bid to revive the eurozone economy. German industrial production was also on the firmer side and came in at 1.2% m/m in March, which reinforced expectations that the Germany economy has started to overcome its soft patch. Elsewhere, Swiss CPI data met expecations at -0.6% y/y and offered justification for SNB's current policy stance. U.K. house price data was healthy and suggests that the BoE's Funding for Lending Scheme is beginning to impact the economy in a positive way.[EUR, USD]
EUR-USD was boosted over 1.3140 on positive sentiment. China trade data set the tone overnight, while in Europe focused shifted to a story in the European press that claimed ECB is considering outright purchases of ABS from banks in southern Europe to free up their balance sheets for lending to SMEs. ECB's Asmussen confirmed that the ABS market is part of the SME debate, which raised optimism that ECB will take more radical steps to kick start credit growth and the eurozone economy. This should be a EUR positive and intra-day accounts have positioned for further EUR upside on report. Note, however, that the ECB is still in the consultation stage and it may be some time before a concrete decision is made. EUR offers close to the market may absorb some of these flows between 1.3140 and 1.3160.[USD, JPY]
USD-JPY was capped over 99.00 overnight as non-Japanese accounts pared back long positions after increased exporter hedging on Monday and Tuesday. Positive risk appetite has helped the JPY crosses, but yen selling has lost some its intensity. The BoJ have eased policy and are likely to digest the impact from the new asset purchase scheme before shifting again. There are also very heavy outstanding 100.00 barriers that are still intact, which has encouraged hedging from lifers and exporters that want to lock current levels. Until these flows run their course USD-JPY may be a range trade. On an intra-day basis, support is noted into 98.50-60. Offers are noted from 99.20-30.[GBP, USD]
Cable is in a holding pattern as the BoE started its two-day policy meeting. Tomorrow's policy outcome is likely to be a non-event for the market after the run of better data has underpinned expectations for a steady hand. Cable benefited from positive risk appetite, which took it back over 1.5500 after it steadied around 1.5450 on Tuesday after stop-related selling. Longs are still in play at current levels and there are also likely to be more buyers towards pullback lows from April-26 at 1.5418. The underlying trend would shift though if 1.5400 gave way and longs that were built up after the U.K. GDP release on April-25 are likely to bail.[USD, CHF]
EUR-CHF was supported ahead of 1.2300 on positive risk appetite, but did not experience much movement over Swiss CPI data, which was to be expected. The headline rate did not deviate a significant amount from market forecasts, at -0.6% y/y and flat on the month. Local names are still keeping EUR-CHF bias with the topside after yesterday's rally out of 1.2255 towards 1.2340 after heavy topside hedging went through from one week out to one month between 1.2300 and 1.2500. The move was speculative in nature as SNB are unlikely to shift the lower limit in EUR-CHF in our opinion. However, it does have justification for keeping policy at these very easy levels based on current inflation data. Activity is showing signs of picking up, but Swiss policy makers have warned over potential risks that still emanate from the eurozone.[USD, CAD]
USD-CAD steadied close to the 1.0050 region. It met buyers ahead of 1.0035 after it took out large bids at 1.0050 in early North American trade. Buyers are note included CTAs and option types, which are likely to be defending outstanding barriers into the 1.0000-20 region. However, the improved risk backdrop, and noted offers from 1.0080 should leave the bias on lower levels.