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By XE Market Analysis December 27, 2017 1:21 pm
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    XE Market Analysis: Asia - Dec 27, 2017

    FX trade was sleepy in N.Y. on Wednesday, with activity drying up into year-end. The dollar was mixed, losing marginal ground to the euro and pound, while making modest inroads against the yen and CAD. Slow trade can be expected to continue until 2018 kicks off next week.

    [EUR, USD]
    EUR-USD pulled back from near one-month highs of 1.1910, bottoming at 1.1886 into the London close. Activity has been light, with trade thin into year-end. The tide may turn against the euro in the new year, as the U.S. tax cuts kick in, and prospects for the U.S. economy overall remain bright. Another weight on EUR-USD will be expected Fed rate hikes, while the ECB remains in easing mode.

    [USD, JPY]
    USD-JPY has been steady through the session, ranging between 113.20 and 113.34 since the open. Today's spot date marks the last settlement day of 2017, leaving most Japanese accounts out of the market until next year. Sideways price action can be expected until the start of 2018 on Tuesday. The dollar is generally expected to move higher in 2018, as U.S. tax reform kicks in, and as the Fed remains on a tightening path. This, as the BoJ is stuck firmly in stimulus mode.

    [GBP, USD]
    Cable printed eight session highs of 1.3429 in N.Y., edging above its 20-day moving average briefly, before heading back to 1.3390 lows. Big picture, sterling has traded mixed this year, gaining on the dollar while losing ground to the euro. Into 2018, we expect the pound will maintain the 15% trade-weighted discount that's been roughly persisting since the Brexit vote in June 2016. The Brexit negotiation process will continue to dominate the UK's agenda. Given our bullish dollar view, we see the risks for Cable are skewed to the downsid

    [USD, CHF]
    EUR-CHF rallied to levels last seen in January, 2015, when the SNB pulled its support from the pairing. We remain bullish over the medium term. Assuming the Eurozone has conquered existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable future (the central bank reaffirmed this commitment at its last quarterly policy review), we anticipate EUR-CHF will make a return to 1.2000.

    [USD, CAD]
    USD-CAD eased to better than three-week lows of 1.2628, adding to recent losses, which came in earnest following last week's firmer Canada CPI and retails sales data. Factors to watch for the CAD in 2018 will center on USD performance from the new tax bill, oil prices, NAFTA negotiations, and of course, how BoC policy plays out. For now, the December 5 low of 1.2624 will provide near term support.

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