25 Mar 2014
Tuesday activity mixed and dollar stable - BMO Capital
FXStreet (Guatemala) - Stephen Gallo, European Head of Currency Strategy at BMO Capital, explained across a broad spectrum of recent activity in the FX space.
Key Quotes
"The USD was mostly stable-to-higher during the London morning, with the DXY now sitting just above its 30-day moving average and at about the middle of yesterday’s range. The rest of the week’s key US data (durables, Services PMI, and personal income & spending) remain rather important for the USD at this stage and for the tone heading into quarter-end."
"Some of yesterday’s price action in the USD may indicate a market which is reluctant to add to USD longs whilst the Fed is still engaged in QE and the data are just ‘lukewarm’. We’re data-dependent, but the bar is fairly high."
"We expect the range in USD/CAD to tighten up heading into tomorrow, especially in light of the further short CAD covering seen yesterday. Key valuation metrics do not indicate that the pair is overly stretched to the topside at this stage (spot ref: 1.1205), and decent support and resistance levels are clustered on either side of spot (1.113-1.120 and 1.1275-1.130 respectively)."
"Key interest rate differentials are still supportive of USD/CAD, but there is a risk that further tepid US data this week knocks those spreads and the USD a bit further back towards their pre-FOMC levels."
"Most key short-term indicators for CNY are now flashing stabilisation. PBoC set the USD/CNY mid-point lower overnight by 26 pips (6.1426) following yesterday’s 23 pip drop."
"The NDF curve has started to flatten out a bit and we’ve observed a fall in demand for high-strike USD/CNH calls. USD/CNY probably would have tested 6.170 today were it not for the PBoC’s intervention flow."
"We still look at the sizeable move up in the CNY fix immediately following the FOMC last week as an important signal from PBoC. Specifically, that it cannot get the better two-way flow in the CNY it is looking for until the Fed begins to let the USD rise."
"That being said, we suspect that there are three primary factors which could see PBoC swing towards higher fixes again, in the 30-plus pip range: poor macro economic data, another build-up of long CNY exposures, and renewed broad-based selling of the USD."
"We would look for another fix lower tomorrow in the 20-30 pip range as a sign that USD/CNY can trade lower than 6.175 at this stage, but we would avoid placing medium-term bets of CNY appreciation until the lower band is back around 6.000 (6.1225 in the fix)."
Key Quotes
"The USD was mostly stable-to-higher during the London morning, with the DXY now sitting just above its 30-day moving average and at about the middle of yesterday’s range. The rest of the week’s key US data (durables, Services PMI, and personal income & spending) remain rather important for the USD at this stage and for the tone heading into quarter-end."
"Some of yesterday’s price action in the USD may indicate a market which is reluctant to add to USD longs whilst the Fed is still engaged in QE and the data are just ‘lukewarm’. We’re data-dependent, but the bar is fairly high."
"We expect the range in USD/CAD to tighten up heading into tomorrow, especially in light of the further short CAD covering seen yesterday. Key valuation metrics do not indicate that the pair is overly stretched to the topside at this stage (spot ref: 1.1205), and decent support and resistance levels are clustered on either side of spot (1.113-1.120 and 1.1275-1.130 respectively)."
"Key interest rate differentials are still supportive of USD/CAD, but there is a risk that further tepid US data this week knocks those spreads and the USD a bit further back towards their pre-FOMC levels."
"Most key short-term indicators for CNY are now flashing stabilisation. PBoC set the USD/CNY mid-point lower overnight by 26 pips (6.1426) following yesterday’s 23 pip drop."
"The NDF curve has started to flatten out a bit and we’ve observed a fall in demand for high-strike USD/CNH calls. USD/CNY probably would have tested 6.170 today were it not for the PBoC’s intervention flow."
"We still look at the sizeable move up in the CNY fix immediately following the FOMC last week as an important signal from PBoC. Specifically, that it cannot get the better two-way flow in the CNY it is looking for until the Fed begins to let the USD rise."
"That being said, we suspect that there are three primary factors which could see PBoC swing towards higher fixes again, in the 30-plus pip range: poor macro economic data, another build-up of long CNY exposures, and renewed broad-based selling of the USD."
"We would look for another fix lower tomorrow in the 20-30 pip range as a sign that USD/CNY can trade lower than 6.175 at this stage, but we would avoid placing medium-term bets of CNY appreciation until the lower band is back around 6.000 (6.1225 in the fix)."