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By XE Market Analysis April 13, 2015 3:04 am
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    XE Market Analysis: Europe - Apr 13, 2015

    EUR-USD has found some buoyancy after sinking from a 1.1035 peak last Monday to a 1.0567 low on Friday, which was a big move. Resistance is marked at 1.0683 and 1.0700, and the 20-day moving average is at 1.0806. USD-JPY recouped most of Friday's losses in making a peak of 120.50 before settling around 120.35. Friday's low at 120.05 and the 20-day moving average at 119.97 mark key near-term support levels, below which would swing recent lows near 119.50 and the 50-day moving average at 119.71 into scope. Cable logged a fresh low at 1.4566, and the pound also saw losses against the euro and yen. Sterling's underperformance is reflective of the market starting to discount risks posed by the May-7 general election in the UK. AUD-USD dropped quite sharply, to a one-week low at 0.7580, down one big figure from the intraday high. The move was triggered by a big miss in China trade data, with exports down 15% in March, which sparked speculation of a sub-7.0% outcome in Wednesday's GDP data.

    [EUR, USD]
    EUR-USD has found some buoyancy after sinking from a 1.1035 peak last Monday to a 1.0567 low on Friday. That was a big move, reflective, we believe, of the underlying fundamental bearishness of the market. On the dollar side of the coin, the U.S. still has slack in the economy, and this is causing the Fed to drag its feet within regard to tightening, but the recovery process is underway and the general view is that the typically laggard labour market will see more wage rises later in the year, which will be the key metric to cause the Fed to eventually pull the rate-hike trigger. On the euro side, reserve and real-money fund managers continue to have to face up to the risk of a 'Greekaccident' scenario and all its possible consequences, while the ECB's EUR 3 bln per day money printing program won't be conducive to euro recovery. We continue to expect parity will be reached in EUR-USD. The Mar-12 cycle low at 1.0462 offers an interim focus. Resistance is marked at 1.0683 and 1.0700. The 20-day moving average is at 1.0806.

    [USD, JPY]
    USD-JPY rose during Tokyo trade and recouped most of Friday's losses in making a peak of 120.50 before settling around 120.35. Friday's low at 120.05 and the 20-day moving average at 119.97 mark key near-term support levels, below which would swing recent lows near 119.50 and the 50-day moving average at 119.71 into scope. Overall, the pair has been plying a broadly sideways path since early December. We remain moderately bullish. Fed remains on course for an eventual rate hike, albeit on an uncertain timetable -- a stance which contrasts that of the BoJ. We see scope for a return to recent highs in the 121.00-122.00 area.

    [GBP, USD]
    Cable logged a fresh low at 1.4566, and the pound also saw losses against the euro and yen. We recommend a short position in Cable into the upcoming May-7 election, targeting a revisit to the low seen in May 2010 at 1.4229. It is highly probable that the election will produce a hung parliament, though it's uncertain whether a coalition government will form, or a minority government will come into existence. There is also a good chance that the SNP (Scottish Nationalist Party) could end up holding the balance of power, and another uncertainty is the possibility that a new election might be called (though most pundits reckon this would be unlikely in the event of a hung parliament). There are numerous possibilities in terms of policy implications, ranging from 'anti-business' fiscal tightening to, if the Conservatives do well, a course to hold a referendum on EU membership by 2017. The fiscal policy of the government may also lack clarity. UK markets have started to factor these risks as the elections starts to loom large on the horizon. With poll after poll pointing to a messy outcome, sterling looks set for more bouts of wobbles.

    [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 recouped the 1.2600 level but has remains below Friday's two-week high at 1.2466. 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 after a series of outsized headline gains 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 1.2557 (50-day moving average) and 1.2500.

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