2013-05-20 09:50 (UTC)
XE Market Analysis
Sentiment is positive as stocks maintained firm levels in Asia and Europe after Friday's positive close for U.S. The debate over Fed policy tapering is expected to drive action ahead of Wednesday's testimony from Fed Chairman Bernanke. EUR, GBP and the commodity bloc currencies are just a short distance from recent lows. However, excessive speculative positioning was flagged as a potential risk in quiet European trade and could be influential over the next 24 hours or so. Note, that CFTC data revealed a 41% rise in EUR shorts and USD longs are also at 11-month highs. A light U.S. calendar is noted today. The Chicago Fed National Activity Index is due, but not really a big market mover. Fed Evans will also speak on the economy. In Canada, markets are closed for Victoria Day.[EUR, USD]
EUR-USD is supported after it held on to the 1.2800 handle in Asia and pushed back over 1.2850. In Europe, buyers were noted from the 1.2835-40 region and it traded as high as 1.2880 on light dollar corrective action. It is probable that more dollar repositioning will go through over the next 24 hours as market participants turn towards Wednesday's testimony from Fed Chairman Bernanke. CFTC positioning data also flagged excessive positioning. The value of dollar long positions hit 11-month highs of $32.27 bln in the week ended May-14, while net EUR shorts also rose 41% to a value of $7.6 bln. Working against the EUR downside is also the lack of sustained movement under 1.2800 this year and EUR could gravitate to levels around 1.2900 or just above. Note, on the 1.29 handle there is still very good resistance from 1.2945-50, which has held since last Wednesday.[USD, JPY]
USD-JPY traded close to 102.50 after whippy movement in Asia. Weekend comments from Japan Economy Minister Amari triggered a fall from 103.20 to 102.00 at the Asia Pacific open. However, by the time Tokyo opened the pair was back on the front foot amid heavy importer demand and good offshore interest. JPY is still expected to meet selling pressure on upticks. BoJ are expected to maintain ultra-easy policy for an extended period and the government is expected to unveil a series of measures to boost growth. However, comments from Amari and other officials in the last several sessions indicate that USD-JPY may be now be at comfortable levels. This could see consolidation pick up. In the options market there is still short dated demand for strikes over 103.00, but from two weeks out to six weeks hedging from 102.00 down to 100.00 is starting to go through.[GBP, USD]
Cable is hovering over 1.5200, where modest options mature today. A pick up in risk appetite and overstretched speculative positioning fueled a move up from 1.5165-70 overnight. However, upward momentum is still likely to be limited intra-day due to the underlying trend and broader dollar sentiment. The BoE minutes on Wednesday could reinforce GBP demand if there are less votes for further QE. There was speculation that BoE Governor King may have dropped his calls for QE after a more optimistic assessment on the U.K. outlook last week. However, he warned in a Sky News interview that more needed to be done to in order to shore up the medium term outlook. He said the biggest risk to the U.K. still stems from the eurozone and called for greater domestic consumption from countries like China and Germany. King backed Chancellor Osborne's fiscal strategy, but was critical of the government's plan to revive the housing market by mortgage guarantees.[USD, CHF]
EUR-CHF is still stable overall, which has been the case since it broke out of the medium term trading range around a month ago. Recent moves over 1.2500 have not been sustained due to increased corporate hedging and outstanding option barriers. However, the underlying trend is still favorable for short swissy positions and this has fueled EUR demand from 1.2450 and below, while there are bids lined up into 1.2400 and 1.2370-80. USD-CHF moves are being influenced by speculative positions and it has stuggled over 0.9700. We think there may scope for some corrective action, particularly with Wednesday's testimony from Bernanke in the spotlight and it could head back towards the 0.9600 region.[USD, CAD]
USD-CAD has pulled back from levels over 1.0300 as the commodity bloc currencies found a modicum of support in Asia on leverage account profit taking. However, CAD$ may still struggle through after the cool Canadian CPI data on Friday and the underlying heaviness in commodity prices. Bidding interest has underpinned from 1.0270 to 1.0250 and the near-term upside target is March March highs, just over 1.0340.