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By XE Market Analysis April 2, 2015 1:19 am
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    XE Market Analysis: Europe - Apr 02, 2015

    EUR-USD held in the mid-to-upper 1.07s during pre-Europe trade in Asia. Intensifying Grexit concerns aside, which is a wildcard for the euro, we favour the upside over the nearer term as weaker than expected ISM, ADP, and construction data out of the U.S. supported outlooks for a weak Q1, while tomorrow's March U.S. payrolls data is likely to show some mean reversion after outsized 239k-423k jobs gains since November that have defied moderating GDP growth. USD-JPY traded slightly softer in Tokyo trade, though yesterday's low at 119.42 remained untroubled. Cable steadied above 1.4800 after declining to a 12-day low at 1.4739 yesterday. The Aussie underperformed, with AUD-USD diving to a three-week low of 0.7568 and AUD-NZD hitting a new record low. Re-occurring talk of risk of a sovereign ratings downside and expectations of an RBA easing at its Apr-7 policy review are weighing on the Australian currency.

    [EUR, USD]
    EUR-USD held in the mid-to-upper 1.07s during pre-Europe trade in Asia. Intensifying Grexit concerns aside, we favour the upside over the nearer term as weaker than expected ISM, ADP, and construction data out of the U.S. supported outlooks for a weak Q1, while tomorrow's March U.S. payrolls data is likely to show some mean reversion after outsized 239k-423k jobs gains since November that have defied moderating GDP growth. The dollar's yield advantage over the euro has already dipped back below 170 bp after peaking near 178 bp earlier in the week, and we expect a further decline on a soft jobs report, although we should stress this is a nearer term call as the ECB's bond buying activities should keep Bund yields pressured. So, near term we see scope for EUR-USD rallying to the 1.1000 area. The 1.1051-52 area, which encompasses the Mar-18 and Mar-26 highs, marks key resistance. Support is at 1.0717-18 and 1.0700.

    [USD, JPY]
    USD-JPY traded slightly softer in Tokyo trade, though yesterday's low at 119.42 remained untroubled. Nearer-term the risks are to the downside as we expect some mean reversion in tomorrow's March U.S. payrolls data after a period of outsized headline increases. A break of the 50-day moving average at 119.41 would swing the Mar-26 and Mar-27 lows at 118.23 and 118.92 into scope. In the bigger view, USD-JPY continues to lack direction, having traded sideways after making since early December. We think the overall bias will be higher into 2016, however, as the Fed and BoJ policy paths are set to contrast.

    [GBP, USD]
    Cable has steadied above 1.4800 after declining to a 12-day low at 1.4739 yesterday. The move reflects a broad dollar decline after a set of softer U.S. data. EUR-GBP has been holding a narrow range around 0.7250-70. We expect incoming UK data to affirm decent growth momentum, but concerns of a hung parliament outcome at the May-7 general election, especially as the SNP (Scottish Nationalist Party) may end up holding the balance of power, will likely crimp sterling's upside potential.

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. There have been some analyst notes in circulation highlighting further policy options the SNB has available to try and keep a lid on the franc (including cutting rates deeper into negative territory). The SNB said at its March policy review that the franc is "significantly overvalued and should continue to weaken over time," and that, in a shot across the bows of the market, said it will continue to take account of the franc rate situation in policy decisions and "remain active in the foreign exchange market, as necessary." Both the SNB and SECO cut growth forecasts, factoring in the sharp franc appreciation that was seen in January after the central bank abandoned the 1.20 floor in EUR-CHF. The SNB expects growth of just under 1% this year (down from 2% expected previously) and SECO 0.9% (from 2.1%). Key support in EUR-CHF is at 1.0400-1.0422.

    [USD, CAD]
    USD-CAD has re-established itself back under 1.2700 after peaking on Tuesday at 1.2784. The 20-day moving average at 1.2637 has also been breached. Bigger picture, yield differentials should remain a U.S. dollar positive into 2016 as the Fed remains on course to tighten policy, albeit on a less certain timetable than was envisaged before the March FOMC statement. The Mar-17 trend high at 1.2835 and the Aug-2009 high at 1.3063 are bigger picture targets. USD-CAD support is at 1.2556 (50-day moving average) and 1.2500.

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