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By XE Market Analysis April 19, 2018 3:05 am
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    XE Market Analysis: Europe - Apr 19, 2018

    The dollar has been trading near net steady so far today, while yen weakness remained a theme. EUR-USD has settled in the upper 1.2300s, holding below the three-week high seen earlier in the week at 1.2414. USD-JPY edged out a three-session high at 107.51, EUR-JPY a two-month high, just above 133.00, while AUD-JPY managed a to post a four-session peak. The generally more risk positive backdrop has continued to weigh on the yen as residual safe haven premium unwinds and markets return focus to bullish fundamental arguments for USD-JPY (specifically yield differentials, which have markedly gapped in the dollar's favour this year). Following the Trump-Abe meeting this week, Trump said he wants a bilateral trade deal with Japan, and there was reportedly no discussion of currency levels between the two leaders. On the trade front, China's commerce ministry repeated today that it is prepared to respond to U.S. trade threats. The Australian dollar came under pressure following a miss in Australian employment data before quickly turning higher. AUD-USD lifted out of its 0.7773 low to post a five-week high at 0.7812.

    [EUR, USD]
    EUR-USD has settled in the upper 1.2300s, below the three-week high seen earlier in the week at 1.2414. Yesterday's downward revision in Eurozone March HICP data, to 1.3% y/y from 1.4% y/y, and Tuesday's sub-forecast German ZEW survey put a lid on euro buying as the data further developed an economic-slowing theme in the Eurozone's engine economy. 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. Near-term risks look to be skewed to the downside. Initial support is at 1.2325-26.

    [USD, JPY]
    USD-JPY edged out a three-session high at 107.51, EUR-JPY a two-month high, just above 133.00, while AUD-JPY managed a to post a four-session peak. The generally more risk positive backdrop has continued to weigh on the yen as residual safe haven premium unwinds and markets return focus to bullish fundamental arguments for USD-JPY (specifically yield differentials, which have markedly gapped in the dollar's favour this year). Following the Trump-Abe meeting this week, Trump said he wants a bilateral trade deal with Japan, and there was reportedly no discussion of currency levels between the two leaders. China's commerce ministry said it is prepared to respond to U.S. trade threats. USD-JPY has been in a rally phase for some three weeks now. Support is at 107.11-12. We look for a breach of last week's two-month high at 107.78 to reaffirm the developing trend.

    [GBP, USD]
    Cable has lodged itself in near 1.4200 after printing a four-day low at 1.4171 yesterday after the pound took a hit after UK March CPI unexpectedly dipped to a one-year low rate of 2.5% y/y, from 2.7% y/y, while the average CPI figure for Q1 was 2.7% y/y below the 2.9% forecast by the BoE in February. Reuters report that most of its survey respondents still expect the BoE to hike the repo rate by 25 bp in May to 0.75% in light of the data today, but with many now expecting that the central bank will accompany such a move by adjusting its forward guidance to a more neutral plane. We concur with this view, with second-round inflationary pressures proving more muted than expected and in light of currency gains over the last several months, which has been slackening the pressure on UK import prices. Cable has been trending higher for a year, and presently looks to be in the early phase of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Initial resistance is at 1.4250, and support is at 1.4145. UK retail sales data is up today, where we expect a 0.6% m/m decline in March (median -0.5%), which will be payback for the strong 0.8% m/m gain in February.

    [USD, CHF]
    Another day, another new trend high in EUR-CHF and USD-CHF, with the former this time posting a 39-month peak at 1.1994 and the latter ascending further into three-month high territory. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied. A background support is the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in an interview with the La Liberte newspaper this week that "it is not yet time to change monetary policy," adding that "we do not want to provoke an appreciation of the Swiss franc." Jordan said that the economic situation has improved over the last year, but low inflation (at 0.8% y/y in March) remained, a problem. EUR-CHF has rallied 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 in the face of euro depreciation caused by ECB monetary stimulus.

    [USD, CAD]
    USD-CAD has settled toward 1.2600 after posting a nine-day low yesterday at 1.2660. The high was seen after the BoC policy announcement yesterday, where rates were left unchanged at 1.25%, as widely expected, and the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD suggests a weakening in the downside trend that's been developing over the last three weeks, from levels near 1.3100.

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