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By XE Market Analysis April 7, 2014 3:21 am
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    XE Market Analysis: Europe - Apr 07, 2014

    Moderate yen firmness was the main theme during pre-European trade in Asia. USD-JPY dipped to a low of 102.99 after closing last week around 103.25. The pair subsequently recovered to the 103.10 area. EUR-JPY, AUD-JPY, and other yen crosses, saw a similar pattern. The yen's move correlated inversely with stock markets, which were down across-the-board in Asia, correcting after nine-consecutive up days. Geopolitical concerns blipped on market radar screens once again on news that pro-Russian protestors in eastern cities in the Ukraine seized state buildings, which Kiev said was the work of Putin. There wasn't much data. Japan's coincident index dipped for the first time in eight months, coming in at -1.8 in February, though this didn't have market impact. Australia's AIG construction index rose to 46.2 from 44.2) and ANZ job ads for March dipped to +1.4% m/m from 4.7%, China markets were closed for a public holiday today. AUD-USD dipped slightly, to a low of 0.9271, before settling. EUR-USD posted a micro-range around 1.3700.

    [EUR, USD]
    We have been favouring a lower EUR-USD over time, targeting 1.3500 and below. This view is based on the divergence between Fed and ECB policy paths, with the former having already signalled that a rate hike is on the horizon while the latter remains embroiled with fighting a threat of deflation. EUR-USD resistance is marked at 1.3770 and 1.3800-15.

    [USD, JPY]
    Moderate yen firmness was the main theme during pre-European trade in Asia. USD-JPY dipped to a low of 102.99 after closing last week around 103.25. The pair subsequently recovered to the 103.10 area. EUR-JPY, AUD-JPY, and other yen crosses, saw a similar pattern. The yen's move correlated inversely with stock markets, which were down across-the-board in Asia, correcting after nine-consecutive up days. Aside from today, the yen has been trending lower since the start of the new fiscal year in Japan. Markets also continue to anticipate a further BoJ easing to offset the sales tax hike that was implemented last week. JP Morgan, for instance, is forecasting an easing in July, which matches the market consensus. We have been targeting 105.00 in USD-JPY.

    [GBP, USD]
    Sterling lost some of its shine over the last week as all three of the Markit PMI surveys for March unexpectedly declined. The data still points to healthy expansion, though at a moderated rate. We remain moderately bullish about sterling against selected currencies, such as the yen, but we think Cable is in for a period of stasis as there isn't much divergence between our Fed and BoE outlooks (notwithstanding that the Fed's ongoing QE program, albeit at a tapering pace, is a technical positive for GBP-USD).

    [USD, CHF]
    EUR-CHF has settled lower after making a two-month high of 1.2249 on Friday. The up move reflects an unwinding of the Swiss franc's safe-haven premium. The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. We see potential for a recovery to the 1.2300-1.2400 area, but this assumes there are no renewed flare-ups in geopolitical tensions.

    [USD, CAD]
    USD-CAD breached and closed last week below 1.1000. The Mar-6 low of 1.0955 is now in scope, and beyond this the Feb-19 low of 1.0910. USD-CAD's mid-March surge to new cycle high of 1.1278 now looks to have been false breakout. Nearer term we are bearish, but don't advise getting too carried away as the Fed vs BoC stance should remains supportive.

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