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By XE Market Analysis August 17, 2017 3:58 am
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    XE Market Analysis: Europe - Aug 17, 2017

    The yen has seen its safe haven bid revived following the collapse of Trump's business councils. The Japanese currency is showing a 0.3% bid going into the London interbank open, although the currency is off its highs. USD-JPY logged a three-day low at 109.76. EUR-JPY also carved out a three-session low. The dollar has traded generally softer, partly on the political situation and partly on the dovish-leaning FOMC minutes from the Fed's June policy meeting. EUR-USD logged a three-day high at 1.1790. USD-CAD was a notable mover, diving to a two-week low at 1.2604, and the dollar also traded at two-week lows versus the Australian dollar. We expect more of the same over the coming days.

    [EUR, USD]
    EUR-USD logged a three-day high at 1.1790, reflecting dollar pressure following dovish-leaning FOMC minutes and the collapse of Trump's business councils. We expect more upside, anticipating a revisit of the 31-month peak seen on August 2 at 1.1910. Support is at 1.1697-1.1700.

    [USD, JPY]
    The yen has seen its safe haven bid revived following the collapse of Trump's business councils. The Japanese currency is showing a 0.3% bid going into the London interbank open, although the currency is off its highs. USD-JPY logged a three-day low at 109.76. EUR-JPY also carved out a three-session low. The dollar has also traded generally softer, partly on the political situation and partly on the dovish-leaning FOMC minutes from the Fed's June policy meeting.

    [GBP, USD]
    Sterling traded over the last day, following a phase of underperformance, with the pound showing an average 0.7% w/w decline versus the G3 currencies, and a 2.7% loss on the m/m comparison. The pound earlier came within a few pips of breaching its post Brexit lows versus the euro before the common currency took a broad trip lower. Her Majesty's currency has lost nearly 11% of its value relative to the euro over the last four months. The relative GDP performance of the UK versus the Eurozone economy's best shines a light on the causes of this exchange dynamic, with the UK posting Q1 and Q2 growth figures of 0.2% q/q and 0.3% q/q versus the Eurozone's 0.5% q/q and 0.6% growth outcomes. With significant Brexit uncertainties remaining, we expect more to come of this trend.

    [USD, CHF]
    EUR-CHF has tipped back below 1.1400 to the mid 1.13s, extending the losses from levels near 1.1500. Outsized losses in USD-CHF have been a factor amid political turmoil and dovish-leaning FOMC minutes. The price action also suggests that the Swiss franc still has vestiges of being a safe haven, despite the SNB's best efforts to dismantle it. We still look 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 dove to a two-week low at 1.2604 as the dollar weakened following dovish-leaning FOMC minutes and news of the collapse of Trump's business councils. We still favour the downside, 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.

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