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By XE Market Analysis December 11, 2014 3:05 am
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    XE Market Analysis: Europe - Dec 11, 2014

    The dollar posted fresh correction lows against most currencies, though subsequently recouped most of these losses. USD-JPY logged a two-week low at 117.43 before recovering the 118 handle. The rebound was aided by Japanese Oct machinery orders which dove 6.4% m/m, contrary to hopes for some modest improvement. Fitch Ratings, meanwhile, said it will probably downgrade its Japan rating if the 2015 budget does not offset sales tax delay. EUR-USD saw a 10-day high of 1.2495 before ebbing back to the mid-1.24s. NZD-USD surged to a 0.7870 high in the wake of the RBNZ announcement today, up from 0.7690. The RBNZ left the interest rate at 3.50% but boosted growth forecasts, saying that rate hikes will be in the cards fat a later stage. AUD-USD clocked a six-day high of 0.8375 before unwinding back to the 0.8320-30 area. The Australia Nov employment produced a solid 42.7k headline, much better than expected, but the devil was in the details as the gain was concentrated in part time jobs while a revision to the previous months' gain left the initial October job gain chopped nearly in half. The data, overall, does little to dent the increasing chance of RBA rate cuts next year.

    [EUR, USD]
    EUR-USD saw a 10-day high of 1.2495 before ebbing back to the mid-1.24s. The move was driven broader dollar chop. We remain bearish on the view of diverging Eurozone and U.S. economic growth, with the ECB inching closer to implementing QE. We look for an eventual make move on the July 2012 low at 1.2042 and see recent gains as opportunity to establish a short position. Resistance is marked at 1.2495-1.2500.

    [USD, JPY]
    USD-JPY logged a two-week low at 117.43 before recovering the 118 handle. The rebound was aided by Japanese Oct machinery orders which dove 6.4% m/m, contrary to hopes for some modest improvement. Fitch Ratings, meanwhile, said it will probably downgrade its Japan rating if the 2015 budget does not offset sales tax delay. Fitch had earlier in the week put Japan's sovereign ratings on Rating Watch Negative (RWN), citing high and rising government debt and increased uncertainty about the authorities' commitment to fiscal consolidation. We see that the overall bias for USD-JPY will remain to the upside. Polls suggest that PM Abe will win this weekend's election, which would give yen-negative "Abenomics" policies a fresh mandate.

    [GBP, USD]
    Cable clocked a two-week high at 1.5757 before dipping back toward 1.5700. The RICS house price balance for November came in at +13%, below median forecasts for 15%. We continue to class Cable as being in a bear trend, which has been persisting since the July cycle high at 1.7192, having made new trend lows on Friday and again on Monday. Key resistance is marked at 1.5825-26. The 1.5541 trend low marks support ahead of 1.5500, while the August 2013 low at 1.5102 should be in the crosshairs of bears.

    [USD, CHF]
    EUR-CHF has continued to ply a narrow range around 1.2020-30, above the rumoured SNB buffer zone between 1.2010 and the 1.2000 franc cap. SNB's Zurbruegg recently pledged that the 1.2000 cap will be defended "with utmost determination" as the bank is prepared to buy an unlimited amount of FX and take further measures immediately if needed. According to more than 60% of respondents of a Bloomberg survey this week, the SNB will have to use negative interest rates to maintain the cap in the scenario that the ECB commences quantitative easing, while all but one anticipates the SNB to step up interventions to defend the 1.2000 peg. Bloomberg also cited SNB member Zurbruegg clarifying that negative rates would have a bigger impact in Switzerland than has been the case in the Eurozone as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs.

    [USD, CAD]
    USD-CAD has settled back in the 1.14s after logging a major-trend high at 1.1502. We anticipate further advances above 1.1500, with the CAD likely to trend lower on the back of soft oil prices. Support is marked at 1.1400-05.

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