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By XE Market Analysis August 18, 2017 3:59 am
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    XE Market Analysis: Europe - Aug 18, 2017

    The yen and safe have assets remained in demand amid a backdrop of U.S. political concerns, which boils down to reduced odds for the implementation of Trump's pro-growth agenda, with the latest terror attack on a Western nation by Islamist extremists, this time in Barcelona, also in the mix. USD-JPY carved out a four-session low at 109.25, and EUR-JPY ebbed to a 43-day low at 127.99. The dollar has come under some broader pressure, which has seen EUR-USD recoup above 1.1700 after logging a three-week low at 1.1662 yesterday, which was seen before speculation and denials that Trump's economic adviser was set to resign. Cable has continued to ply a narrow range around 1.2900. AUD-USD has ebbed back under 0.7900, correcting after logging a two-week high at 0.7962 yesterday.

    [EUR, USD]
    EUR-USD recouped above 1.1700 after logging a three-week low at 1.1662 yesterday, which was seen before speculation and denials that Trump's economic adviser Cohn was set to resign. Despite the denials, there remains anxiety among investors and business leaders about the seemingly dimming prospects for the implementation for tax reform and plans for mega infrastructure investment. There are concerns about the approaching debt ceiling, which Fed officials have already highlighted is something that they're keeping a weather eye on. Against this backdrop, and assuming there is not material improvement, we expect EUR-USD will be biased steady-to-firmer. Support is at 1.1710-12.

    [USD, JPY]
    The yen and safe have assets remained in demand amid a backdrop of U.S. political concerns, which boils down to reduced odds for the implementation of Trump's pro-growth agenda, with the latest terror attack on a Western nation by Islamist extremists, this time in Barcelona, also in the mix. USD-JPY carved out a four-session low at 109.25, and EUR-JPY ebbed to a 43-day low at 127.99. We anticipate more of the same, seeing scope for a run at the 100.00 level.

    [GBP, USD]
    Sterling has continued to trade on a mixed footing. This follows a clear phase of underperformance, with the pound showing an average 2.7% loss to the G3 currencies over the last month. The pound had 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 logged four-session lows under 1.1300 amid the general euro ebb, which received added push from yesterday's publication of the minutes to the ECB's August policy meeting, revealing concern about the pace of euro gains. The EUR-CHF cross, which has made something of a return as a "normally" trading pairing over the last month, has last week's low at 1.1260 back in focus. The Swiss franc has traded moderately softer versus the dollar and yen, among other currencies. Assuming the Eurozone economic revival remains on track, which would help quell policymaker angst about euro gains, and assuming the ECB commits to QE policy tapering, we expect the EUR-CHF to recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD has settled in the mid 1.26s after logging a two-week low at 1.2588 yesterday as the dollar weakened amid political uncertainty in the U.S. and following Wednesday's dovish-leaning FOMC minutes. We 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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