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By XE Market Analysis April 9, 2015 2:29 am
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    XE Market Analysis: Europe - Apr 09, 2015

    EUR-USD is heavy once again, this time as the dollar finds broad support in the wake of the FOMC minutes to the recent Fed policy meeting, which although showing mixed views among members revealed that both Fed's Dudley and Powell mulled a rate hike as early as June. If nothing else the minutes were a reminder that the Fed remains on track to an eventual tightening. EUR-USD will open in London in eight-day low territory having breached yesterday's 1.0763 low. The Mar-30 low at 1.0713 is the next focal point while the 20-day moving average at 1.0804 now marks resistance. We remain dollar bullish in the bigger picture. USD-JPY has breached yesterday's high and looks set to test Tuesday's peak at 120.44. The 20-day moving average at 120.06 and the 120.00 level now revert as support levels. The Japanese central bank's monthly economic report was published today to little fanfare, repeating the boilerplate assessment of an economy continuing on a "moderate" recovery path.

    [EUR, USD]
    EUR-USD is heavy once again, this time as the dollar finds broad support in the wake of the FOMC minutes to the recent Fed policy meeting, which although showing mixed views among members revealed that both Fed's Dudley and Powell mulled a rate hike as early as June. If nothing else the minutes were a reminder that the Fed remains on track to an eventual tightening. EUR-USD will open in London in eight-day low territory having breached yesterday's 1.0763 low. The Mar-30 low at 1.0713 is the next focal point while the 20-day moving average at 1.0804 now marks resistance. We remain dollar bullish in the bigger picture. Last week's sub-expectations March jobs report was more a case of mean reversion after a period of outsized gains from November through to February rather than a signal of a trend change. Signs of a tightening labour market, with the likes of McDonald's and Walmart having to up pay levels, for instance, point to a sea change that is occurring in the U.S. economy.

    [USD, JPY]
    USD-JPY has breached yesterday's high and looks set to test Tuesday's peak at 120.44. The 20-day moving average at 120.06 and the 120.00 level now revert as support levels. The dollar is generally firmer following the FOMC minutes, which although showing discord among members also affirmed that the Fed remains on course for an eventual rate hike -- a stance which contrasts that of the BoJ. The Japanese central bank's monthly economic report was published today to little fanfare, repeating the boilerplate assessment of an economy continuing on a "moderate" recovery path. We expect USD-JPY to trade higher, seeing scope for a return to recent highs in the 121.00-122.00 area

    [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 this week, 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 1.4800-07, resistance at 1.4900 and 1.4920.

    [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 firmed to one-week highs, breaching above the 50-day moving average at 1.2560. 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 1.2522, 1.2500 and 1.2429-30.

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