2013-05-23 07:14 (UTC)
XE Market Analysis
Markets are still reeling from yesterday's Bernanke testimony and Q&A session, which covered both sides of the QE debate, though his admission that tapering could come in the next few meetings, depending on data, saw a big fallout in risk-trades. This was backed up by the FOMC minutes, which also echoed this view, while in Asia, there were heavy losses related to a big drop in China manufacturing PMI, while JGB market volatility also unnerved investors. The dollar is is trading on the firmer side and carry trade unwinding elevated CHF and JPY. The yen is sharply higher as offshore funds liquidated speculative positions. USD-JPY lost more than two big figures from over 103.50 to 101.45, while AUD-JPY saw massive unwinding by Japanese retail accounts and plunged from 100.00 to 97.50. AUD got hit hard amid concerns over China, while on the domestic front news that Ford is pulling out of Australia by 2016 added to the build up of negative leads for Australia this week. Europe has manufacturing PMI to focus on, along with ECB speak. In the U.K. GDP data is expected to be confirmed at 0.3% q/q.[EUR, USD]
EUR-USD ranges were relatively tight compared with other currencies. Overall it experienced selling pressure on upticks following Wednesday's sharp drop from the 1.3000 region to 1.2835. It started the Asian session just above 1.2850 and ebbed to 1.2824 after weak China PMI data steepened the dollar bid. However, there was decent support on dips related to EUR-AUD demand. The cross rallied from 1.3250 and extended through yesterday's 1.3320 highs as AUD suffered more heavy selling. However, the EUR-crosses did correct overall. EUR-CHF and EUR-JPY were weighed by carry trade unwinding, while EUR-GBP experience consolidation following recent GBP weakness.[USD, JPY]
USD-JPY fell sharply in the Asian afternoon and it accelerated into the European open on heavy unwinding of carry trade positions. Stop losses featured heavily in the downturn. 102.50 and 102.00 were big trigger levels and losses extended to the 101.40 area. Natural bids put a floor in place ahead of previous lows of 101.35 and 101.20 and bargain hunting went through out of Europe. USD-JPY climbed back to 102.00 in about 30 minutes of trade after the London open, but the downturn in Nikkei (-7.32%) and losses in other global stocks should encourage yen demand on dips. Offers in USD-JPY are tipped ahead of 102.20 and the 102.50-60 area.[GBP, USD]
Cable is settled just in front of the psychological 1.5000 level, where option barrier exposure is also widely tipped. GBP came under pressure on Wednesday after a rash of disappointing U.K. data releases and the BoE minutes. Cable was jerked around like the other dollar pairings during Bernanke testimony, and eventually slid to 1.5020 on general dollar strength, and a late day drop in risk appetite. From here, there may be some tentative demand by corporate accounts and option related flows, though upward momentum looks limited into the 1.5050 region initially amid the underlying dollar strength.[USD, CHF]
The CHF is higher amid a meltdown in carry trades after Bernanke opened the door to QE tapering in the coming months if data improved further. USD-CHF backed away from over 0.9800 and has traded under 0.9750 in Asia following heavy stock market losses amid weak data from China. EUR-CHF experienced a sharp correction from yesterday's 1.2649 highs and traded as low as 1.2506 on heavy repositioning. However, we think EUR-CHF should still meet decent demand on dips after SNB's Jordan also joined the chorus of dovish central bank speak yesterday and opened the door for potential easing. However, as the CHF weakens it could reduce the SNB's need to raise the lower limit in EUR-CHF, though negative interest rates remain an option as it still battles to overcome deflation.[USD, CAD]
USD-CAD is consolidating yesterday's sharp gains, leaving it close to the 1.0380 area. It experienced a fairly quiet overnight session as the focus was on AUD and JPY. USD-CAD has rallied more than 100 pips since yesterday's N.Y. morning and may be due a period of sideways action. However, with risk appetite significantly impaired the risk is on a 1.0400 test, where option barrier exposure is noted. Any correction to the downside should find support from 1.0350 and into the 1.0320-30 area.