2013-05-09 10:34 (UTC)
XE Market Analysis
There were some brief flurries of activity, but overall ranges held ahead of the BoE policy outcome and today's latest U.S. jobless claims report and wholesale trade. EUR was unchanged intra-day at 1.3100 and Cable held just above 1.5550, while USD-JPY continued its struggle under 99.00. There were mixed leads from Asia. Good employment numbers from Australia and NZ were positive developments. However, movement was isolated to the respective domestic markets as China CPI disappointed PBoC policy easing expectations after it accelerated to 2.4% y/y. In Europe, there was nothing surprising from the ECB's monthly report, which echoed remarks made by ECB's Draghi. Meanwhile, Spanish bond auction results were healthy, while ECB's Weidmann said that it was right for ECB policy to be expansionary and it can still take further action. However, he warned that low rates are no permanent solution and it must be prepared to raise rates quickly when the situation improves.[EUR, USD]
EUR-USD continued to trade close to the familiar 1.3150 region into the N.Y. open. The balance of risk was on the upside early on due to a better technical backdrop, increased reserve management flows and large 1.3200 option expiries. Early on, buyers lifted the pair out of 1.3145-50 and it headed just over 1.3175. However, short term funds and intra-day types sold into upticks while good offers held into 1.3200 and it headed to 1.3135. Prices could gravitate towards 1.3200 in early N.Y. due to option maturities in excess of EUR 2 bln today.[USD, JPY]
USD-JPY endured another another frustrating session close to 99.00. Japanese bids propped the pair up from 98.65, while short term players faded moves towards 99.00. There are several good size maturities at 98.50, 98.75, 98.80, 98.85 and 99.00, which reinforced the rangebound tone. Offshore names still predict further USD-JPY strength. However, 100 options are still providing a cap and exporters and lifers are more inclined to lock in current levels. This theme will continue until there is a significant shift from Japanese investors into overseas assets.[GBP, USD]
Cable is in a holding pattern between 1.5550 and 1.5600 of the BoE policy decision. Cable's proximity to 1.5600 and the potential for a steady policy hand from the BoE raises the risk of a sustained push higher. A sustained move above 1.5600 could exacerbate short position unwinding due to outstanding long-term speculative positions. Cable was supported intra-day on more U.K. data improvement, which supports the case for a steady hand at least until Carney takes over as BoE Governor. U.K. industrial production and manufacturing output data beat expectations and after recent PMI improvement it looks as if growth is beginning to pick up.[USD, CHF]
EUR-CHF consolidated the recent rally and settled just under 1.2300. The balance of risk remains on the topside, though 1.2350 barriers have proved to be a decent cap on gains so far. Wednesday saw another move higher on better risk appetite, which was absorbed by option flows at 1.2340 highs. The options market is hedging against upside risk and this reinforced demand for strikes up to 1.2500 over a one-month horizon. On an intra-day basis outstanding 1.2300 strikes look likely to limit spot movement. Outside of this level local names are propping up the downside from 1.2270-80, while offers increase from 1.2330. Long-term resistance also remains from the 1.2370 area.[USD, CAD]
USD-CAD remained inside a narrow range as it inches towards outstanding option barriers at 1.0000. During the Asian session it bumped again 1.0020 support, but could not overcome option related flows and edged back over 1.0030 by the European open. In Europe, short term accounts kept the bias on lower levels and the risk backdrop should determine where USD-CAD goes from here. However, we think the 1.0000 level is going to be difficult to overcome, with corporate names and CTAs also active on dips. Offers are now tipped between 1.0040 and 1.0050 and then into the 1.0080 area.