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By XE Market Analysis December 11, 2018 3:25 am
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    XE Market Analysis: Europe - Dec 11, 2018

    Narrow ranges have prevailed so far today. EUR-USD has settled in the mid 1.1300s, consolidating losses from the mid 1.1400s that were seen yesterday, while USD-JPY has settled in the lower 113.0s after capping out at a one-week high yesterday at 113.36. Stock markets have found a footing on news that the U.S. and China are talking, though sentiment remains fragile. The Bank of Indonesia reportedly intervened, buying the Rupiah and selling Dollars today. Cable has settled in the upper 1.2500s after diving sharply yesterday to an 18-month low at 1.2506 when the UK Prime Minister May decided, convinced of pending defeat, to postpone the parliamentary vote on the Withdrawal Agreement with the EU. Her plan, as it has emerged, is to gain a guarantee from the EU that there will be an end-date to the backstop on the Irish border, preventing the UK becoming perpetually stuck in the EU. The trouble is that EU leaders, Ireland leaders in particular, have made clear that they won't renegotiate the withdrawal agreement, than the best deal is on the table. Markets are also concerned about the timetable. There hasn't been any confirmation when the vote will take place, which to most political pundits in the UK suggests it will be January. Even if the vote passes in parliament, that would leave limited time to pass the ensuing Brexit legislation in time for the official EU-leaving date on March 29.

    [EUR, USD]
    EUR-USD has settled in the mid 1.1300s, consolidating losses from the mid 1.1400s that were seen yesterday after the UK PM delayed the vote on the Brexit deal. The pair has been in a bear trend since April, although downside momentum has abated in recent weeks, gaining amid a soft Dollar profile as Fed policy expectations are recalibrated. We still take an overall bearish view of the pairing. The U.S. economy remains strong, even if the Fed's tightening course is heading for a pause, while conviction for eventual ECB tightening has concurrently faded with the Eurozone economy losing momentum. The Eurosceptic populist movement gripping parts of the Eurozone, to which Italy's budget-planning woes and the Brexit mess are symptoms, also remains a concern. EUR-USD has resistance at 1.1406-08, and support at 1.1350.

    [USD, JPY]
    USD-JPY has settled in the lower 113.0s after capping out at a one-week high yesterday at 113.36. The pair is roughly near the midway point of a choppy, sideways range that's been unfolding since early October, both underpinned by fundamentals and limited by period bouts of intense risk-off trades, which generate safe haven demand for the Yen. Stock markets today in Asia have been in a state of cautious advance, on news of talks between Chinese Vice Premier Liu He and U.S. Treasury Secretary Mnuchin. But S&P 500 futures are down 0.3% in overnight trading, more than wiping out yesterday's Wall Street gain. Markets are also fretting about the credibility and viability of UK Prime Minister May's plan to gain some sort of guarantee from the EU that there will be an end-date to the backstop on the Irish border, preventing the UK becoming perpetually stuck in the EU, when EU leaders have made quite clear that they won't renegotiate the withdrawal agreement, than the best deal is on the table. USD-JPY has support at 112.93-95, and resistance at 113.34-35.

    [GBP, USD]
    Cable has settled in the upper 1.2500s after diving sharply yesterday to an 18-month low at 1.2506 when the UK Prime Minister May decided, convinced of pending defeat, to postpone the parliamentary vote on the Withdrawal Agreement with the EU. Her plan, as it has emerged, is to gain a guarantee from the EU that there will be an end-date to the backstop on the Irish border, preventing the UK becoming perpetually stuck in the EU. The trouble is that EU leaders, Ireland leaders in particular, have made clear that they won't renegotiate the withdrawal agreement, than the best deal is on the table. Markets are also concerned about the timetable. There hasn't been any confirmation when the vote will take place, which to most political pundits in the UK suggests it will be January. Even if the vote passes in parliament, that would leave limited time to pass the ensuing Brexit legislation in time for the official EU-leaving date on March 29.

    [USD, CHF]
    EUR-CHF dropped sharply yesterday to a two-and-a-half month low at 1.1235, breaching support at 1.1260-61 on route. The losses reflect Brexit-related angst after UK Prime Minister May postponed the parliamentary vote on the EU Withdrawal Agreement, which generated confusion and increased the perceived risk of a hard, no-deal Brexit scenario. This weighed on both the Pound and the Euro while reviving the Franc's historic role as a safe haven. The SNB conducts its next quarterly policy review this week (Thursday). The central bank has been continuing to tread carefully amid heightened uncertainty about the economic outlook, geopolitical risks and protectionist threats. Recent market volatility and Brexit risks will do little to change the SNBs stance, and we expect the central message to remain that the situation remains fragile and the currency "highly valued." So the SNB widely expected to keep policy unchanged at December meeting while continuing to focus on a negative rate policy and ad hoc currency intervention. Under the circumstances, rate hikes are unlikely to be on the agenda for a long time to come.

    [USD, CAD]
    USD-CAD has remained buoyant but below last week's 18-month high at 1.3445. A rebound, or at least steadying, in oil prices after OPEC agreed on a 1.2 mln barrel per day output cut, along with Friday's sub-forecast U.S. jobs report, have curtailed USD-CAD's upside momentum. Overall, we continue to take a bullish view. The pair has resistance at 1.3445-50, and support at 1.3347-50.

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