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By XE Market Analysis August 20, 2014 3:03 am
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    XE Market Analysis: Europe - Aug 20, 2014

    The USD rallied again, with EUR-USD making a fresh nine-month low of 1.3300, bringing last November's 1.3295 low into scope, and USD-JPY spiking to a four-month high of 103.26. Elsewhere, GBP-USD clocked a new four-month low of 1.6601, and AUD-USD one-week low of 0.9278. The gain in the dollar follows net positive U.S. data yesterday and comes ahead of the FOMC minutes from the late July meeting, due later today, which may show the hawkish voices at the Fed strengthening a little. In Australia, RBA Stevens gave AUD-USD a helping push lower as he said the risk of a AUD decline is underappreciated by markets and that he has not thought about raising rates any time lately.

    [EUR, USD]
    EUR-USD made a fresh nine-month low of 1.3300, bringing last November's 1.3295 low into scope. The dip reflects a broad gain in the dollar following net positive U.S. data yesterday and comes ahead of the FOMC minutes from the late July meeting, due later on Wednesday, which may show the hawkish voices at the Fed strengthening a little. The Ukraine situation, the impact of sanctions against Russian on the Eurozone economy (Russia is the Eurozone's fourth largest trading partner), and the Eurozone's disinflation problem should collectively maintain EUR-USD's bearish bias, even if the is Fed taking its time to an eventual policy tightening. We continue to anticipate an eventual test of 1.3000.

    [USD, JPY]
    USD-JPY spiked to a four-month high of 103.26. The move reflects a broad gain in the dollar following net positive U.S. data yesterday and comes ahead of the FOMC minutes from the late July meeting, due later on Wednesday, which may show the hawkish voices at the Fed strengthening a little. We remain bullish, anticipating a move to the April high at 104.13. Bloomberg reportd last week that the BoJ officials are considering cutting growth forecast for FY 2014, "according to people familiar with the central bank's discussions," and the JGB 10-year benchmark yield has dipped below 0.50% for the first time in 16 months. USD-JPY support is now marked at 102.90 and 102.43 (200-day moving average). An uncertainty for a bearish yen view is the geopolitical situations in the Mideast and Ukraine, as any significant worsening, to the extent it causes a risk-off theme in global markets, would likely prompt yen gains.

    [GBP, USD]
    GBP-USD clocked a new four-month low of 1.6601. Sterling has been an underperformer this week following U.K. CPI data, which fell to 1.6% y/y from 1.9% y/y in June, below the median forecast for 1.8% y/y, while PPI output prices dropped into negative territory for the first time this cycle. Following data last week showing a negative average household incomes print, the BoE won't be in any rush to hike interest rates. Market expectations for the first BoE repo rate hike are shifting out to the end of Q1 or Q2 next year having recently been discounting a hike as soon as before year-end. The previous trend low at 1.6657 now marks resistance in Cable, while technically-minded bears will note the close below the 200-day moving average at 1.6677 as affirming potential for 1.6500.

    [USD, CHF]
    EUR-CHF steadier, back above 1.2100, after clocking an eight-month low at 1.2086 on breaching supports at 1.2120 and 1.2100-2105. We expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100, and so have been expecting the cross to base. SNB's Jordan repeated recently that the central bank remains firmly committed to defending the currency cap.

    [USD, CAD]
    USD-CAD broke above 1.0950 on broad-based U.S. dollar buying. The pair had earlier in the week found its feet after dipping to a seven-week low of 1.0860 last Friday. The pair recovered above key support marked by a confluence of the 20-, 100- and 200-day moving averages, contained within 1.0865-1.0885, which suggested that the technical picture was not too bearish. We look for a broadly sideways price action over the coming period -- strong offers are reported into 1.1000 -- but a take a more bullish view in the bigger picture as we expect the U.S. economy to continue to recover.

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