Home > XE Currency Blog > XE Market Analysis: Europe - Aug 16, 2017

AD

XE Currency Blog

Topics4602 Posts4647
By XE Market Analysis August 16, 2017 3:26 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3133
    XE Market Analysis: Europe - Aug 16, 2017

    The dollar majors settled in narrow ranges. USD-JPY lost upside steam as global stock market performance turned more mixed following a rebound phase. The pair settled in the mid 110.00s after a three-day rally capped out yesterday at 110.84, an eight-day peak. EUR-USD planted itself around 1.17740 after logging a one-week low at 1.1687 yesterday, which was seen following robust retail sales and Empire State index reports out of the U.S. USD-CAD settled below the one-month peak of yesterday, at 1.2778, and Cable rooted itself in the mid 1.28s after logging a one-month low yesterday at 1.2846. A central focal point today will be the release of the FOMC minutes to the June policy meeting, with markets particularly eager to learn of any signal on the timing for the start of quantitative tightening, and what the Fed thinking is on the persistence of benign inflation data.

    [EUR, USD]
    EUR-USD planted itself around 1.17740 after logging a one-week low at 1.1687 yesterday, which was seen following robust retail sales and Empire State index reports out of the U.S. A central focal point today will be the release of the FOMC minutes to the June policy meeting, with markets particularly eager to learn of any signal on the timing for the start of quantitative tightening, and what the Fed thinking is on the persistence of benign inflation data. We expect the minutes will have things for both dollar bulls and dollar bears, so don't anticipate too much directional potential. While last Friday's tepid U.S. inflation data eroded expectations for Fed tightening, we don't see too much upside potential in EUR-USD as the ECB is likely to remain reluctant to commit to a tapering schedule.

    [USD, JPY]
    USD-JPY lost upside steam as global stock market performance turned more mixed following a rebound phase. The pair settled in the mid 110.00s after a three-day rally capped out yesterday at 110.84, an eight-day peak. The recovery in risk appetite, as cooler heads prevail in the North Korean situation, drove broad yen weakening over recent sessions. USD-JPY tested resistance is at 110.80-82. We advise following the trend for now, while keeping stops tight and a close eye on the geopolitical situation.

    [GBP, USD]
    Sterling has been trading weaker against both the dollar and euro today. Cable logged a one-month low at 1.2846 and EUR-GBP a 10-month peak at 0.9132. Sub-forecast inflation figures out of the UK were the latest selling cue, with the data firming up the consensus view for the BoE to maintain unchanged monetary policy through to 2019. With the government favouring a hard Brexit, we expect further downside in sterling. The government yesterday released its first detailed Brexit position paper on the customs relationship with the EU, which if nothing else shows how complicated the shift out of the EU will be. Cable's 12-July low at 1.2811 provides the next downside target. Resistance is at 1.2875-76.

    [USD, CHF]
    EUR-CHF failed to sustain recovery gains to 1.1500, instead stalling short of the level and then settling in the lower 1.14s. Recent price action seems to affirm a new-found confidence to short the franc, which has hinged on improving sentiment about Eurozone's economy and political viability. Up until recently even the enticement of a -0.75% deposit rate had failed to entice sustained franc shorting, which would be welcome by the SNB, which has long-since battled what it characterizes as a "significantly" overvalued currency. We are looking for EUR-CHF to eventually "close the gap" by returning to the 1.2000 level, which had been the SNB's floor until abandoning it in January 2015.

    [USD, CAD]
    USD-CAD logged a fresh one-month peak yesterday at 1.2778, extending a two-week rebound phase following a firmer set of U.S. data on Tuesday. Softer oil prices this week have also helped underpin the pairing. We still favour the downside, overall, anticipating the BoC to make a second 25 basis point rate hike in October, which would take the policy rate to 1.00%. We see two more 25 basis point rate increases next year.

    Paste link in email or IM