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By XE Market Analysis January 14, 2015 2:25 pm
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    XE Market Analysis: Asia - Jan 14, 2015

    The dollar took a hit in N.Y. trade on Wednesday, with the selling kicking off after a very weak December retail sales report. EUR-USD had posted new trend lows of 1.1727 in London trade, though shot up from near 1.1775 to over 1.1845 after the data. USD-JPY was slammed again, trading into 116.05 before rallying back on reported carry trade activity. Wall Street sold off heavily, as Treasury yields moved to multi-year lows. The greenback did manage to recover some through the remainder of the session, though continued risk-off conditions sill make further USD upside more difficult going forward, as deflation concerns keep markets nervous, as commodity prices remain under pressure. There was little reaction to the Fed's Beige Book, which said growth was "modest" to "moderate," reviving those adjectives. The report didn't sound as optimistic as we had expected, though the tepid views were largely a function of lower oil prices.

    [EUR, USD]
    The dollar fell after the mix of data, where retail sales and import prices were both well shy of expectations. EUR-USD jumped from 1.1775 to over 1.1845 before easing back. EUR-USD was unable to hold altitude above the 1.1800 mark however, attempting to move higher on several occasions through the session. Ahead of next week's ECB meeting, where QE is all but certain following the EU court guidance earlier, the euro will likely remain in sell the rally mode. This said, there remains risk of a short squeeze at some point ahead of the meeting, as the market appears to have come very close to fully pricing in QE.

    [USD, JPY]
    USD-JPY sold off sharply after the weak U.S. sales data, moving to lows of 116.08 before finding a footing. The pairing later edged back above the 117 level, despite the drubbing on Wall Street, and lower Treasury yields. Reports of fresh carry trade positions being entered were heard, with traders taking advantage of one-month yen highs. USD-JPY had fallen over 300 points from Monday's highs.

    [GBP, USD]
    Cable rallied to 1.5269 highs after the weak U.S. retail sales data, popping from 1.5170 into the N.Y. open. Risk off was again the story through the session, which generally weighed on the greenback. Overall though, the pound remains in a downtrend, and an eventual test of 1.5000 still looks likely. The sharp drop in the UK December composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of just 0.5%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee, who are likely to be more patient in making the first tightening of the cycle.

    [USD, CHF]
    EUR-CHF has come under fresh pressure in recent days, once again amid general euro weakness, and has logged a low of 1.2007 today. Swiss foreign currency reserves data for December, out today, show reserves rose to CHF 495.1 bln (a record) from CHF 462.7 bln in November, confirming the SNB's intervention on Dec-18. The intervention was additional to the implementation of a negative deposit rate, which was cut to -0.25%, also on Dec-18. The rouble crisis and euro weakness saw EUR-CHF come under pressure in December, and on Dec-16 the cross came within six pips of SNB's the 1.2000 limit. The cross spiked to 1.2096 on Dec-18 on the intervention and the announcement of the negative deposit rate. This was the first time that the SNB has intervened in spot since 2012. With the ECB set to pursue QE, the SNB will have its work cut out to defend 1.2000 during the first half of 2015.

    [USD, CAD]
    USD-CAD fell back from overnight trend highs of 1.2018, trading down to 1.1930 early in the session. Profit taking was a steady feature into the North American open, while the modest WTI crude rally helped CAD sentiment some as well. NYMEX crude moved over $46.70, after finding a floor just under $45 overnight. USD-CAD support was seen into the 1.1930 level, which marks the one-week low, and it held nicely. The risk-off conditions ultimately brought buyers back, taking USD-CAD back to 1.2001 into the close.

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