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By XE Market Analysis April 9, 2014 2:54 am
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    XE Market Analysis: Europe - Apr 09, 2014

    The AUD rose to a new high on data, and the yen softened during Tokyo trade after extending gains during the post-Europe New York session yesterday. The yen's pronounced strength over the last few days, which accelerated yesterday, weighted heavily on Japanese stock markets today, which conspicuously underperformed an otherwise bullish day across the Asia-Pacific region. The Nikkei closed with a 1.9% loss while the MSCI Asia Pacific index was showing a 0.9% gain. Also, the Takashimaya department chain reported a 25% sales drop in the first week after sales tax hike. This backdrop guided the yen lower. USD-JPY recovered the 102.00 handle after dropping to a three-week low of 101.55 during the New York PM session. EUR-JPY also lifted after seeing a two-week low of 140.08. The AUD, meanwhile, was underpinned by home-loan approvals data, which came in at +2.3% m/m in February, the biggest increase since September and above the 1.5% median forecast. AUD-USD extended to a fresh four-month high of 0.9387. Elsewhere, EUR-USD edged out a fresh high just after the London close, to 1.3811, before settling to a micro-range during Asia, centred around 1.3790-1.3800.

    [EUR, USD]
    EUR-USD edged out a fresh six-day high just after the London close, to 1.3811, before settling to a micro-range during Asia, centred around 1.3790-1.3800. The EUR's volatility over the last week or so has been driven by somewhat inconsistent communication from ECB members. The market had been starting to price in further easing measures, but recent policymaker guidance has been to emphasize that further action is more a possibility than a probability, and this has underpinned the EUR's rebound this week. We continued to take a bigger-picture bearish view of EUR-USD, targeting 1.3500. 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 1.3820 (Apr-2 high) and 1.3875.

    [USD, JPY]
    The yen softened during Tokyo trade after extending gains during the post-Europe New York session on Tuesday. The yen's pronounced strength over the last few days, which accelerated yesterday, weighed heavily on Japanese stock markets today, which conspicuously underperformed an otherwise bullish day across the Asia-Pacific region. The Nikkei closed with a 1.9% loss while the MSCI Asia Pacific index was showing a 0.9% gain. Also, the Takashimaya department chain reported a 25% sales drop in the first week after sales tax hike. This backdrop guided the yen lower. USD-JPY recovered the 102.00 handle after dropping to a three-week low of 101.55 during the New York PM session. EUR-JPY also lifted after seeing a two-week low of 140.08. USD-JPY's low yesterday's coincided with the 200-day moving average, and we expect this to hold, and that the bigger picture direction to remain higher.

    [GBP, USD]
    Sterling has consolidated after rallying yesterday on production data out of the U.K., which smashed expectations and implied that we'll see upward tweaks in Q1 GDP forecasts. Cable has settled in the mid-1.67s after logging a three-week high of 1.6754. Recent highs between 1.6788 and 1.6822 is a key resistance zone, and good selling interest would likely be seen on any approaches. Last week's March PMI surveys had disappointed relative to market expectations, but the data still points to healthy expansion in the economy, while yesterday's more laggard official data suggests GDP growth may be a little higher this quarter than previously anticipated. The recent rebound in the yen may make GBP-an attractive route for sterling bulls as BoE and BoJ policy paths are starting to diverge.

    [USD, CHF]
    EUR-CHF has settled lower, below 1.2200 again, after making a two-month high of 1.2249 last Friday. The recent up move reflected 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, assuming there are no renewed flare-ups in geopolitical tensions.

    [USD, CAD]
    USD-CAD has found a toe-hold just above the Feb-19 low of 1.0910. This level and 1.0900 are key support levels, followed technical bearish price action over the last week. 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, the we would also advise caution as the Fed vs BoC stance should remain supportive of USD-CAD.

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