Home > XE Currency Blog > XE Market Analysis: Europe - Apr 10, 2015

AD

XE Currency Blog

Topics7232 Posts7277
By XE Market Analysis April 10, 2015 3:00 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5156
    XE Market Analysis: Europe - Apr 10, 2015

    EUR-USD settled to the upper 1.06s after diving to a three-week low of 1.0638 yesterday. The move was concomitant with a spike in the dollar's yield advantage to the 179 bp area in the 10-year T-note versus Bund comparison, up from levels nearer 170 bp that were seen earlier in the week. USD-JPY settled modestly lower after surging to a three-week peak of 120.74 during yesterday's dollar-led rally. The Nikkei stock index briefly traded above 20k, which invited some yen selling, which proved to be short-lived, before the index tipped lower. 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. AUD-USD's recent run higher has stalled with the pair struggling to sustain gains above 0.7700. Lower iron ore prices (futures down over 2.5% in Asia) and a Bloomberg poll finding all of 26 respondents expecting the RBA to cut interest rates in May should keep a lid on the Aussie.

    [EUR, USD]
    EUR-USD has settled to the upper 1.06s after diving to a three-week low of 1.0638 yesterday. The move was concomitant with a spike in the dollar's yield advantage to the 179 bp area in the 10-year T-note versus Bund comparison, up from levels nearer 170 bp that were seen earlier in the week. Recent daily lows at 1.0713 and 1.0718 are now initial resistance, while support is at 1.0638 and 1.0600-13. 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. The fact that high street corporate bellwethers McDonald's and Walmart are having to pony up higher pay to attract and retrain staff reflect a sea change in the U.S. economy. Juxtaposed to this is the threat of a 'Greaccident' in the Eurozone, along with ECB money printing.

    [USD, JPY]
    USD-JPY has settled modestly lower after surging to a three-week peak of 120.74 during yesterday's dollar-led rally. The Nikkei stock index briefly traded above 20k, which invited some yen selling, which proved to be short-lived, before the index tipped lower. The 20-day moving average at 120.04 and the 120.00 level are support levels. The dollar has traded generally firmer following the release of the FOMC minutes to the recent Fed policy review, 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. We expect USD-JPY's bias to remain higher, seeing scope for a return to recent highs in the 121.00-122.00 area.

    [GBP, USD]
    Sterling has traded weaker against the outperforming dollar and steady against the euro. UK data should continue to show health economic momentum and tightening labour market conditions, though upside potential for sterling will likely be curtailed into the May-7 election, which 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 1.4688 and 1.4635 (major trend low), resistance at 1.4739-52 (which encompasses recent daily lows).

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. 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 firmed to one-week highs above 1.26 after yesterday breaching above the 50-day moving average at 1.2560. 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, we should point out, 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.

    Paste link in email or IM