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By XE Market Analysis December 10, 2013 3:03 am
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    XE Market Analysis: Europe - Dec 10, 2013

    Sterling outperformed in the period since Monday's London closing levels, extending to a fresh two-year high 1.6457 versus the USD, a new high for the week against the EUR, and a new major-trend peak versus the JPY. This followed remarks made after the London close by BoE Governor Carney, who said that U.K.'s need for stimulus risks fueling a housing market bubble, mentioning that the central bank has a range of tools it could deploy, if necessary, to offset a housing market growing a "warp speed." The BoE has already announced that the mortgage market focused part of the Funding for Lending scheme will terminate in January. Next target for Cable is 1.6500 and the August 2011 peak at 1.6572. Cable seemed to lift EUR-USD and other dollar pairings higher. EUR-USD logged a new high for the month of 1.3768, triggering stops through the key 1.3735 level. The JPY remained weak, with GBP-JPY leading EUR--JPY and other yen crosses to fresh major highs, with USD-JPY scraping above its Dec-2 peak to a new six-month peak of 103.39. May's major high at 103.73 provides the next target. Economic data out of Asia didn't have much bearing on markets today. Carney's remarks, the Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation fighting stance. The AUD was soft, affected by weak stock markets as the market considers the timing of Fed tapering.

    [EUR, USD]
    EUR-USD logged a new high for the month of 1.3768 during Asian trade, triggering stops through the key 1.3735 level. The move occurred on the coattails of the outperforming GBP-USD, which was lifted by remarks made late yesterday by BoE Governor Carney. EUR-JPY scaled to a fresh major-trend high, with the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation fighting stance. EUR-USD's break of 1.3735 is a bullish sign, technically, breaking above a resistance trend line of a bullish channel, in play since early November. The Oct-30 peak of 1.3787 is the next target, with 1.3695-1.3700, which encompasses the Dec-9 low, giving support.

    [USD, JPY]
    The JPY has remained weak, and we expect it to continue to do so. GBP-JPY led EUR--JPY and other yen crosses to fresh major highs during Tokyo trade today, with USD-JPY scraping above its Dec-2 peak to a new six-month peak of 103.39. May's major high at 103.73 provides the next target. Economic data out of Japan or Asia didn't have much bearing on markets today. The Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation fighting stance, while BoE Governor Carney boosted GBP-JPY by remarking about the risks of a house price bubble developing in the U.K.

    [GBP, USD]
    Sterling outperformed in the period since Monday's London closing levels, extending to a fresh two-year high 1.6457 versus the USD, a new high for the week against the EUR, and a new major-trend peak versus the JPY. This followed remarks made after the London close by BoE Governor Carney, who said that U.K.'s need for stimulus risks fueling a housing market bubble, mentioning that the central bank has a range of tools it could deploy (which would include raising capital requirements for mortgage lenders), if necessary, to offset a housing market growing a "warp speed." The BoE has already announced that the mortgage market focused part of the Funding for Lending scheme will terminate in January. Next target for Cable is 1.6500 and the August 2011 peak at 1.6572.. Trend line support is some way off from prevailing levels, coming in at 1.6355. We had been recommending the GBP-JPY route for sterling bullish, though the market is looking overstretched and perhaps due for a correction.

    [USD, CHF]
    The USD-CHF logged a two-year low to 0.8884, reflecting broader U.S. dollar weakness, while EUR-CHF has remained settled above the three-month low posted last Friday. The recent run of CHF outperformance has largely stalled following the strong U.S. payrolls report on Friday, which managed to revive risk appetite in global markets, though the issue about whether the Fed will commence QE tapering as soon as this month remains unresolved and could still cause some indigestion to markets. The safe haven Swiss currency will remain sensitive to developments on this front. We expect the Fed to refrain from tapering at its meeting next week, and this implies scope for CHF weakness, though the technical picture in USD-CHF and EUR-CHF is pretty much the opposite. EUR-CHF support is given by last Friday's low of 1.2215, and that fact that this matched the Sep-29 nadir strengthens the significance of this as a key support level. There was also a low of 1.2218 made on Jun-24, which builds the significance of the 1.2215-20 region as a support base.

    [USD, CAD]
    USD-CAD has settled to consolidation after the strong rally extended to a new major-trend high of 1.0707 last Wednesday following the BoC announcement and statement, which emphasized the downside risks to inflation. The pair looks to have become a bit overstretched, though a footing was found at 1.0625-30 on Thursday, and this support base has held good since. Good offers are now reported around 1.0700-10. A consolidation phase looks likely over the coming days, especially with U.S. Fed policymakers having entered the blackout phase ahead of next week's FOMC, which will deprive markets of clues with regard to whether the Fed will commence tapering this month or next.

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