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By XE Market Analysis December 20, 2013 2:44 am
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    XE Market Analysis: Europe - Dec 20, 2013

    The USD extended to fresh post-taper highs before settling lower. The BoJ maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen, as was widely expected and to little impact, though USD-JPY appeared to acknowledge the contrasting BoJ versus Fed stances with a rally to a fresh major-trend peak of 104.59. Decent selling interest was seen above 104.50. EUR-USD logged a new two-week low to 1.3625 after breaching yesterday's 1.3651 low and triggering stop orders. Cable drifted lower too, but continued to hold up comparatively well in the wake of the solid U.K. labour market data earlier in the week, reflected by the fresh two-week low EUR-GBP saw, at 0.8330, and the new five-year high in GBP-JPY, of 171.21. AUD-USD held up comparatively well, firming on news that China's repo rate opened lower (the repo rate has been under upward pressure recently, which has seen China stock markets underperform), though this proved to be short lived, taking the wind out of the Aussie's sails.

    [EUR, USD]
    EUR-USD logged a new two-week low to 1.3625 after breaching yesterday's 1.3651 low and triggering stop orders. This occurred as the USD extended to fresh post-taper highs against some currencies before settling lower. Decent selling interest in EUR-JPY, which is at near five-year high levels, was reported in the Tokyo session once again. EUR-USD's Dec-6 low of 1.3618 is the next support level, ahead of 1.3600. The 50-day moving average is situated at 1.3575. Resistance at 1.3650.

    [USD, JPY]
    USD-JPY has remain well bid. The BoJ maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen, as was widely expected and to little impact, though USD-JPY appeared to acknowledge the contrasting BoJ versus Fed stances with a rally to a fresh major-trend peak of 104.59. Decent selling interest was seen above 104.50. EUR-JPY also saw selling interest in Tokyo, reportedly a mixture of Japanese exporter selling and speculative profit taking. We continue to target 105.00 in USD-JPY.

    [GBP, USD]
    Sterling has continued to hold its ground against the generally firm USD after surging on Wednesday on news of the unexpected unemployment drop, which fell to 7.4% in October to complete a two-month 0.3 of a percentage point decline with the 99k dive in unemployment the biggest drop in over 13 years. The drop in the unemployment rate is much quicker than the BoE had projected under its forward guidance framework. The release of the BoE MPC minutes showed that members were concerned that any further "substantial" appreciation in sterling would slow the recovery, though this has largely been ignored by markets. Recent data, including the 18-year high in the CBI industrial trends figure, fits the prevailing status of the U.K. being one of the quickest expanding developed-nation economies. We have continued to target Cable to 1.6500.

    [USD, CHF]
    The CHF has established a weakening path in the wake of the FOMC's stock market friendly announcement, and the currency's safe haven premium is eroding now that the period of Fed policy uncertainty is over. EUR-CHF breached 1.2250, well up on the pre-Fed eight-month low of 1.2166. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is now at 1.2220 and 1.2200. USD-CHF faces resistance at 0.9000, but can be expected to breach this over the coming sessions.

    [USD, CAD]
    USD-CAD settled back under 1.0700 after surging mid-week in the wake of the Fed's decision to commence tapering, breaking above the recent trend high of 1.0707 and rallying to a new three-year peak of 1.0727. Although the Fed upgraded dovish forward guidance to offset its tapering announcement, the Fed's stance contrasts the move dovish BoC. Initial USD-CAD support comes in at 1.0650. The pair is looking stretched technically, which is to say by historical price deviations, so a bullish tactic would be to wait for near-support levels before entering a long position.

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