2013-05-22 11:43 (UTC)
XE Market Analysis
EUR-cross flows and central bank policy bias were significant influences. The dollar started the session on the softer side following yesterday's Fedspeak, which dampened the debate on tapering ahead of today's testimony from Bernanke. EUR-GBP pressed higher amid macro and model fund demand amid yesterday's weaker CPI reading; and gained traction after the BoE minutes revealed a 6-3 vote on unchanged policy, along with a batch of disappointing U.K. data releases. Cable sank below 1.5100 against this backdrop. EUR-AUD raced higher on macro selling of Aussie, while EUR-CHF surged on speculative flows and dovish rhetoric from SNB Jordan. He left left the door open on more policy options ahead of the June SNB meeting. EUR-JPY also moved to new trend highs, which lifted USD-JPY back into 103.00 as the BoJ left policy unchanged and Governor Kuroda said Japan has not yet achieved strong and sustainable growth.[EUR, USD]
EUR-USD was underpinned by cross flows. Very heavy demand went through since the Asian morning and gained momentum in Europe on model fund and momentum account demand. EUR-USD had upside potential after yesterday's Fedspeak dampened the debate on tapering and played into the hands of specs repositioning ahead of Bernanke. Note, recent proprietary models and speculative data had flagged excessive positioning in USD long and EUR short positions. EUR-GBP was boosted by model funds following yesterday's underperformance in sterling amid the weaker than expected U.K. CPI reading. EUR-AUD just broke long-term resistance at 1.3220 amid a macro fund buy order and EUR-JPY cleared 133.00 for the first time in more than three years, while EUR-CHF extinguished barriers between 1.2550 and 1.2600 barriers. The net impact on EUR-USD has seen it threaten 1.2945 resistance, though one active sovereign has faded rallies.[USD, JPY]
USD-JPY headed back to 103.00 amid EUR-JPY strength, which followed increased demand for the euro crosses. Meanwhile, BoJ Governor Kuroda also maintained dovish rhetoric in today's post-policy meeting press conference. Kuroda said that Japan had not yet achieved strong sustainable growth and also played down the impact on JGB yields. However, the BoJ will meet JGB market participants on May-29 to decide the schedule for purchases and to discuss recent market movement. Kuroda did not think the recent increase in yields was having a major impact on the economy, but would continue to monitor the market and will be flexible in its purchases of government debt and market operations.[GBP, USD]
GBP sank after the BoE minutes and U.K. data. The BoE voted 6-3 against further asset purchases, which was unchanged from previous meetings and may have caught some market participants by surprise. The recent positive data evolution had raised expectations of a possible 7-2 vote. U.K. retail sales also disappointed and was much weaker than expected at -1.3% m/m. Cable hit 1.5075, which matched lows from April-3, and will leave bears in control in the short-term. However, we anticipate corporate demand to pick up and even though data is weak there are still signs that the U.K. is recovering gradually, which should fuel good offshore demand for sterling on dips. Meanwhile, other U.K. releases included a deterioration in government borrowing data, while U.K. CBI also disappointed.[USD, CHF]
EUR-CHF surged on spec flow and SNB Jordan's remarks. After clearing 1.2550 early on in the session it pulled back briefly to 1.2530 on profit taking and then took off to trade at new 2013 highs over 1.2600. Jordan opened the door for more policy options after he said that in principle an adjustment in the CHF cap was amongst the options that were available to the SNB if needed, adding that it never excluded negative interest rates. Jordan maintained it will keep the cap as long as necessary and it can use interventions to defend the lower limit if needed. Today's rhetoric from Jordan should keep EUR-CHF elevated until the next SNB policy meeting on June-21.[USD, CAD]
USD-CAD corrected from 1.0320 back to the 1.0250 region as longs got stopped out on yesterday's surprisingly dovish Fedspeak. However, the underlying dollar trend and the recent evolution in CAD$ price action fueled bargain hunting on dips, leaving USD-CAD close to 1.0270 by the Asia open and it was back on the rise again as liquidity picked up during the European session, which lifted it over 1.0300. Longs are still targeting 2013 highs at 1.0343 from March-1, though importer demand for CAD$ has risen and there is resistance from 1.0320 to 1.0335.