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By XE Market Analysis April 8, 2014 2:53 am
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    XE Market Analysis: Europe - Apr 08, 2014

    Yen firmness was the main theme in pre-Europe trade in Asia. USD-JPY broke below 103.00 and left a low at 102.74, which is the lowest level seen since Mar-28. A subsequent rebound saw the 103.00 level retaken before the pair settled around the 102.90 mark. Mostly lower stock markets in Asia helped underpin the Japanese currency. The MSCI Asia Pacific stock index was showing a 0.4% decline in the late Tokyo PM session, following tech-led dive in Wall Street, where the Nasdaq 100 posted its biggest loosing streak since 2011. The BoJ left policy unchanged as was widely expected (news conference still to come), and so without market impact (markets are discounting fresh stimulus in July). Outside USD-JPY and yen crosses, most currencies were stable. EUR-USD flat-lined around 1.3740-45. AUD-USD drifted modestly higher, to the 0.9290-95 area. Australian data hadn't little impact with markets looking to Thursday's March employment report.

    [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]
    USD-JPY broke below 103.00 and left a low at 102.74, which is the lowest level seen since Mar-28. A subsequent rebound saw the 103.00 level retaken before the pair settled around the 102.90 mark. Mostly lower stock markets in Asia helped underpin the Japanese currency. The MSCI Asia Pacific stock index was showing a 0.4% decline in the late Tokyo PM session, following tech-led dive in Wall Street, where the Nasdaq 100 posted its biggest loosing streak since 2011. The BoJ left policy unchanged as was widely expected (news conference still to come), and so without market impact (markets are discounting fresh stimulus in July). We target 105.00 in USD-JPY.

    [GBP, USD]
    Sterling has been mixed so far this week, firmer against the dollar but softer against the euro. Today brings us industrial production data for April, which are expected to show healthy increases and be consistent with expectations for a +0.7% q/q Q1 GDP outcome. Last week's March PMI surveys were more timely and were disappointing relative to market expectations, but the data still points to healthy expansion in the economy. 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 negative for the dollar versus the pound).

    [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 failed to hold a rebound back above 1.1000 on Monday. This followed Friday's breach and weekly close below this level, which all together paint a bearish technical picture. 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. While we are bearish over the nearer term, we wouldn't advise getting too carried away as the Fed vs BoC stance should remains supportive of USD-CAD.

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