XE Market Analysis: Europe - Mar 06, 2013
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EUR-USD was supported on dips into 1.3040-50 as firmer regional stock markets kept the dollar on the softer side. However, it continued to meet good offers into 1.3070, which were evident on Tuesday from fund names. Tomorrow's ECB policy decision has deterred buying momentum, along with political uncertainty in Italy. Against this backdrop any upticks may be sold into, though close-to-market buy stops through 1.3100 may be vulnerable on a further improvement in risk appetite.
USD-JPY tested the downside after was unable to sustain higher levels after the Tokyo fix. It fell back from the 93.40 area to 93.00, where good bids put a floor in place. EUR-JPY was stable ahead of 121.50, but good offers into 122.00 capped gains ahead of the European open. There was light yen demand after U.S. Treasury Brainard warned against foreign bond buying for FX adjustment in comments carried by JiJi press, but overall most players were sidelined ahead of tomorrow's BoJ meeting, where policy is expected to remain unchanged ahead of Kuroda's first meeting in early April.
Cable backed away from the 1.5200 region on Tuesday following the break higher amid robust U.K. services PMI. Offers have been in place from 1.5200 to 1.5220 since the end of February and look like keeping the bias on the lower levels now that the short covering rally from under 1.5000 has run its course. On an intra-day basis, short term sell stops are tipped through 1.5100 from longs built up on Monday and may bail if 1.5100 gives way.
EUR-CHF firmed up since the start of the week after EUR-USD regained its poise over 1.3000 amid a rise in risk appetite. EUR-CHF steadied just under 1.2240 on Monday and closed around the 1.2250 area, which encouraged light demand on dips and it extended to just shy of 1.2300 today. Momentum on the upside is being limited by some reluctance to over extend EUR longs ahead of Thursday's ECB meeting and of course the ongoing political uncertainty in Italy. USD-CHF has found a modicum of support into the 0.9400 region after it pulled back from 0.9440 on Monday, which compared with Friday's rally highs just over 0.9460. USD-CHF risk should remain with the upside into tomorrow's ECB meeting, though over 0.9450 movement could be challenged by supply related to outstanding option barriers.
USD-CAD pulled back under 1.0260 on Tuesday, following the greenback's overall trend lower. Support remained in place at 1.0250 in Asia, and generally, the pairing will likely be driven by pre-BoC positioning adjustments. The Bank will keep rates unchanged, though we see scope for a more dovish alteration in language in the March announcement. As a result, the USD-CAD downside is limited, despite the firmer risk backdrop. USD-CAD has seen good selling pressure over 1.0290 and good offers remain in place from 1.0300. Higher up stops are noted at 1.0320 ahead of 1.0350 barriers.
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