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By XE Market Analysis April 16, 2018 3:31 am
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    XE Market Analysis: Europe - Apr 16, 2018

    Moderate yen outperformance has been a feature in otherwise narrow-ranging early-week trading. EUR-USD held in the lower 1.2300s, remaining within Friday's range. USD-JPY, meanwhile, dipped below Friday's low at 107.25 on route to a 107.13 low, which marks a correction in an upside trend that's been in development for two weeks now, from mid 104.00 levels. EUR-JPY and other yen crosses have seen a similar dip. Today was the first time markets had a chance to react to the U.S.-led strike against alleged chemical plants and storage facilities belonging to Syrian regime, though while the Japanese currency, widely considered a safe haven unit, gained, most stock markets lifted across the east Asia region, along with European and U.S. index futures on the view that the military action avoided escalation by being narrowly focused and ensuring Russian and Iranian assets weren't hit. Elsewhere, the pound lifted, continuing a recent phase of outperformance.

    [EUR, USD]
    EUR-USD has so far held in the lower 1.2300s, remaining within Friday's range. An evident slowing in Eurozone growth, along with ECB policy-meeting minutes showing that most members are not convinced that inflation is on a sustained path higher, have offset the rally-phase that had been seen in the wake of disappointing U.S. jobs data earlier in the month. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.

    [USD, JPY]
    USD-JPY and yen crosses have ebbed moderate lower in early-week trading. Today was the first time markets had a chance to react to the U.S.-led strike against alleged chemical plants and storage facilities belong to Syrian regime, which bid the yen, despite most stock markets gaining across the east Asia region. USD-JPY's dip breached Friday's low at 107.25, marking a correction in an upside trend that's been in development for two weeks now, from mid 104.00 levels. This follows a three consecutive week run higher. Support is at 106.90-92. Japan has quite a busy data calendar this week, starting with revised February industrial production (Tuesday), where we expect a bounce of 4.1% m/m in February after dropping 6.8% m/m in January.

    [GBP, USD]
    Cable has remained buoyant after hitting a 12-week high at 1.4296 on Friday. Her Majesty's currency also posted trend highs versus the euro and yen -- 11-month highs in the case of the former. The pound is up some 3% on the year-to-date, with Cable making last week its fifth up week out of the last six. Various reasons are been cited in market narratives. One is the expectation for the BoE to hike rates at its monetary policy meeting next month, which would follow last November's first-in-a-decade hike, and take the repo rate to 0.75%. Another is seasonal, with the end of the UK's fiscal year often leading to a pickup in sterling demand. And another thread of market conjecture centres on the benefit of last month's EU and UK's agreement on a 21-month post-Brexit transitory period, which has calmed nerves in the business and investor community by buying more time to figure out the Northern Irish border situation and negotiate new trading terms. Market participants are also looking to this week's UK inflation and labour market data (due Wednesday and Tuesday, respectively), which are expected to show CPI remaining at 2.7%, above the BoE's 2.0% target, and the unemployment rate remaining at the multi-decade 4.3% low. Cable has trend support at 1.4194-96.

    [USD, CHF]
    EUR-CHF broke sharply higher last week, extending to a fresh 39-month high at 1.1889, with subsequent dips having remained shallow. A background support for the cross is the widespread expectation for the SNB to remain strongly committed to negative interest rates, until after the ECB starts tightening. SNB board member Maechler recently bemoaned a still "highly valued" currency and argued that premature tightening in monetary policy would be counterproductive. EUR-CHF has rallied nearly 11% from mid last year. We have a long standing target for the cross to return to the 1.2000 level, which was the SNB's cap that was abandoned back in January 2015.

    [USD, CAD]
    USD-CAD remained heavy after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that's been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2634-36.

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