Home > XE Currency Blog > XE Market Analysis: Europe - Apr 28, 2015

AD

XE Currency Blog

Topics7226 Posts7271
By XE Market Analysis April 28, 2015 2:55 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5150
    XE Market Analysis: Europe - Apr 28, 2015

    The euro continues to ebb and flow in sympathy with the ebb and flow of Greek exit concerns, rising in the latest phase on news that Athens has revamped its negotiating team. The dollar's yield advantage over the euro has also narrowed, albeit moderately, over the last couple of trading days, shrinking to the 175-76 bp area from around 180 bp at the 10-year T-note over Bund comparison. EUR-USD logged a three-week high at 1.0926 yesterday, breaching the 50-day moving average on route, which is currently sitting at 1.0887. USD-JPY plied a narrow range in Tokyo, where markets wound down ahead of the Gold Week holiday period in Japan. The low seen was 118.98, and bids were reported at 118.90. Sterling settled after clocking gains versus both the dollar and the euro this week. The commodity bloc remained perky, with AUD-USD clocking a one-month peak at 0.7888, piercing its 200-day moving average at 0.7886. The AUD's yield advantage over the USD continues to widen, now pushing above 64 bp at the 10-year debt maturity comparison, up from around 55 bp seen a week ago. USD-CAD, meanwhile, yesterday posted a three-month low at 1.2080.

    [EUR, USD]
    The euro continues to ebb and flow in sympathy with the ebb and flow of Greek exit concerns, rising in the latest phase on news that Athens has revamped its negotiating team. The dollar's yield advantage over the euro has also narrowed, albeit moderately, over the last couple of trading days, shrinking to the 175-76 bp area from around 180 bp at the 10-year T-note over Bund comparison. EUR-USD logged a three-week high at 1.0926 yesterday, breaching the 50-day moving average on route, which is currently sitting at 1.0887. Support is at 1.0845 and 1.0776, which is the current position of the 20-day moving average. We continue to take a bearish bigger-picture view of EUR-USD, seeing scope for an eventual more on parity, even if Grexit fears were to abate. We expect the U.S. economy to grow out of its recent soft patch (partly caused by inclement weather and a port strike on the west coast), which would in turn firm up expectations about the timing of Fed tightening. Such as scenario, we feel, would fuel the next bearish phase of EUR-USD.

    [USD, JPY]
    USD-JPY plied a narrow range in Tokyo, where markets wound down ahead of the Gold Week holiday period in Japan. The low seen was 118.98, and bids were reported at 118.90. The 200-day moving average is at 119.27, which marks resistance. All of the 20-, 50- and 200-day moving averages are currently sitting within 119.00-120.00, and all have pretty horizontal profiles, reflecting flat bigger-picture momentum. The pair has been in a broadly sideways trading pattern since early December, which has roughly been centred on 120.00. There has been nascent speculation that the BoJ may taper its QQE program in 2016, though this is a minority view with just four out of 32 respondents at a recent Bloomberg survey expecting this, while there is a majority who still expect an expansion in stimulus by the end of October. BoJ Kuroda said in a speech on Apr-19 said that while the "underlying trend of inflation has improved...low inflation momentum" is threatening to pull inflation expectations lower. We still favour the upside of USD-JPY as we expect the U.S. economy to grow out of its recent soft patch, which in turn would firm up Fed tightening expectations.

    [GBP, USD]
    Sterling has traded higher against both the dollar and the euro this week. Cable clocked an eight-week peak at 1.5261. The rally the pair has experienced over the last couple of weeks has been technically significant, breaching above the 20-, 50- and 200-day moving averages, and the Mar-18 peak at 1.5169. A generally softer dollar as a one driver, though the upbeat tone of the BoE minutes from the April MPC meeting, along with generally firm UK data, have provided some sterling-specific support. This week's UK data releases are likely to be firm, on net. The looming May-7 UK election should be a consideration for sterling traders and UK asset investors. Latest polls put the Conservatives in the lead, though without an outright majority which leaves the prospect of a SNP-Labour coalition as the most likely outcome. Markets haven't being showing anxiety about this. For now, further Cable gains look likely, though bulls should be warned that the U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we still think the Fed will be at least six months ahead of the BoE in tightening rates.

    [USD, CHF]
    EUR-CHF has drifted higher amid a generally firmer tone in the euro. Recent highs at 1.0414 and 1.0427 mark resistance. This comes after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank. The central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." We advise caution in trading long franc positions. SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD logged a three-month low at 1.2080 on Monday. This extended the sharp declines that have been seen since mid-April from levels near 1.2700, which has followed a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by $10 rise in oil prices. That fall in USD-CAD is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region is at 1.1950-1.2000.

    Paste link in email or IM