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By XE Market Analysis April 8, 2015 2:27 am
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    XE Market Analysis: Europe - Apr 08, 2015

    EUR-USD's correction came to pause after leaving a low at 1.0803, with the pair since recouping to the 1.0850 area. The 20-day moving average, presently sitting at 1.0801, has been acting as a support. Since making major trend lows at 1.0462 on Mar-13 trade has been choppy and more two way compared to the one-sided market that prevailed before, with the market is presently lacking direction in the wake of the sub-par U.S. employment report. USD-JPY has settled back below 120.00 after failing to sustain gains above both here and the 20-day moving average at 120.10, which now marks resistance. The BoJ left policy unchanged at its policy review today, as was widely expected, which leaves the QQE program at Y80 tln per month.

    [EUR, USD]
    EUR-USD's correction came to pause after leaving a low at 1.0803, with the pair since recouping to the 1.0850 area. The 20-day moving average, presently sitting at 1.0801, has been acting as a support. Since making major trend lows at 1.0462 on Mar-13 trade has been choppy and more two way compared to the one-sided market that prevailed before, with the market is presently lacking direction in the wake of the sub-par U.S. employment report. However, the March jobs report was more a case of some mean reversion after a period of outsized gains from November through to February, and did not signal a change of trend. The Fed still remains on course to tighten policy, albeit further down the track (market thinking is between September to Q1 next year). The euro, meanwhile, has the ongoing Greek saga to contend with. Greece promised not to default on the upcoming IMF repayment, though the risk of Grexit continues loom as negotiations with creditors drag on. We favour range trading for now, but still see scope for a renewed push toward parity further out. EUR-USD's resistance is at 1.0900-10 and 1.1035 (Monday's peak) and 1.1073 (50-day moving average).

    [USD, JPY]
    USD-JPY has settled back below 120.00 after failing to sustain gains above both here and the 20-day moving average at 120.10, which now marks resistance. The BoJ left policy unchanged at its policy review today, as was widely expected, which leaves the QQE program at Y80 tln per month. This had little market impact. The technical picture in USD-JPY is mixed after a choppy period of trade. Expectations that the Fed might delay its tightening to September, if not 2016, has left the dollar somewhat rudderless for now. USD-JPY resistance is at 120.10 (20-day moving average), and on the downside the 50-day moving average is at 119.55. We still think that the BoJ is on course for an eventual easing while the Fed still remains on course for an eventual tightening, though this bullish USD-JPY view won't much have bearing over the immediate period ahead. Range trading preferred for now.

    [GBP, USD]
    Sterling should remain on a relatively firm footing against both the dollar and the euro as UK data should continue to show health economic momentum and tightening labour market conditions, though upside potential will likely be curtailed into the May-7 election. The services PMI for March came in yesterday, for instance, much stronger than expected at 58.9 in March, an seven-month high and up from 56.7 previously. The median forecast had been for a more modest rise to 57.0. The looming election, however, brings concerns of a hung parliament outcome, particularly as the SNP (Scottish Nationalist Party) could end up holding the balance of power. Cable support is at 1.4830.

    [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 continues to orbit near the 1.2500 level. The pair has settled lower after peaking last Tuesday at 1.2784. 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 jobs report, weakness in which was more about mean reversion than change of trend. 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 1.2429-30.

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