2013-05-13 10:21 (UTC)
XE Market Analysis
The dollar was underpinned throughout the session. Overnight, the latest article from WSJ's Hilsenrath encouraged dollar demand after he said the Fed has mapped out a strategy for winding down its bond buying program, but the timing on when to start is still being debated. It might not be the clear and steady path markets expect and officials are focusing on clarifying the stategy so markets do not overreact. EUR traded under 1.3000 throughout, while Cable was stable around the 1.5350 area on optimism over the U.K. outlook. Meanwhile, JPY was mostly supportive in Europe after it experienced profit taking from new trend lows seen in Asia, which followed the G7 meeting, where Japan avoided direct criticism of its policies. There was broad agreement not to target exchange rates, which is in line with other G7 and G20 meetings.[EUR, USD]
EUR-USD traded in a tight range after it lacked momentum under 1.2950. EUR bears were encouraged by the negative close on Friday, but overstretched short positioning and heavy order flows limited price action. A Middle Eastern account was an early buyer, but the 1.3000 level remained intact. A semi-official account offer raised speculation that SNB reserve management flows are going through for the second consecutive session. The lack of interest today was highlighted by the lack of follow through after comments from ECB's Visco. He said the ECB will cut the deposit rate to negative territory if the economy needs further help, but it only had a brief impact.[USD, JPY]
USD-JPY corrected from fresh trend highs to trade back towards 101.50. It hit highs of 102.15 in Asia as short term accounts sold JPY after the G7 meeting, while focus also shifted to Fed policy as the debate over tapering picked up on the weekend. USD-JPY's lack of progress over 102.00 was due to longer term hedging by exporters and real money. However, the outlook for JPY is negative amid expectations of increased demand for oversea investment by Japanese lifers. BoJ Governor Kuroda said that Japanese money was already shifting away from JGBs into other assets in comment made over the weekend, but did not think that long-term rates would jump. Position traders are likely to buy USD-JPY from 101.30 to 101.00 and larger order flows is not into the 100.50 area.[GBP, USD]
Cable is consolidative around 1.5350 in quiet trade. Friday's move into 1.5315 was a symptom of broader dollar strength, but overall U.K. fundamentals are improving and this has limited downside pressure. The recent run of U.K. data fueled expectations in the weekend press that Wednesday's quarterly Inflation Report could result in an upward revision in growth and it could also cut back its CPI forecast. Meanwhile, the CBI's latest survey data forecast growth of 0.3% this quarter and rising to 0.4% for the next two quarters and 0.5-0.6% for each quarter of 2014. The more optimistic outlook could underpin foreign investors inflows into the U.K. Appetite to hold gilts has been healthy even when the U.K. economy was struggling.[USD, CHF]
CHF edged lower after the unexpected decline in Swiss retail sales. EUR-CHF moved back over 1.2425 after 1.2400 held in early trade. Local name order flows forced an early move from 1.2440 as offers held at 1.2450 in Asia. However, the underlying tone is still skewed in favour of the topside after last week's break to 1.2460 highs. SNB policy speculation picked up pace last week after disappointing inflation numbers and triggered heavy topside hedging via EUR-CHF. Meanwhile, USD-CHF has also benefited from the wider dollar uptrend and and broke the top of the long-term range on Friday at 0.9550-70 is trading a tight range close to 0.9600 today.[USD, CAD]
USD-CAD peaked just over 1.0150 on Friday after tripping stops at 1.0130. The pairing subsequently eased back under 1.0120 in light trade, where it remained in overnight trade. Friday's break higher should encourage buying interest on dips, but ultimately it will take its lead from the risk backdrop. Stocks were mixed in Asia and this could keep CAD$ on the heavier side, while Fed policy is also in focus as the debate over tapering picked up on the weekend. Note, offers into 1.0150 and 1.0170.