Home > XE Currency Blog > XE Market Analysis: Europe - Dec 20, 2018

AD

XE Currency Blog

Topics6376 Posts6421
By XE Market Analysis December 20, 2018 4:07 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4368
    XE Market Analysis: Europe - Dec 20, 2018

    The Yen has outperformed amid a risk-off backdrop, with stock markets in Asia tumbling and S&P 500 futures showing losses of over 0.5%, building on the closing losses seen on Wall Street yesterday after the Fed refrained from signalling a pause in its tightening cycle. Oil prices are down over 2%, though remain above the trend lows seen earlier in the week. The Fed delivered on the generally expected 25 bp rate hike, and trimming in the dots to suggest two 25 bp hikes next year, versus three previously. The statement retained the phrase "The Committee judges that (some) further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity." This was a disappointment to not only President Trump but also investors. Demand for the safe-haven Japanese currency saw USD-JPY fall by over 0.5% in posting a seven week low of 111.80, while EUR-JPY and AUD-JPY also dove into seven-week low territory. The BoJ left rates on hold and also sounded cautious, as expected, which had little bearing on markets. Dollar and Dollar bloc underperformance have been an accompanying theme to Yen outperformance as markets adjust to the lower Fed tightening trajectory in the case of the Dollar and risk-aversion in the case of the Dollar bloc units. EUR-USD gained 0.4% in printing a 1.1425, though the pairing has remained shy of yesterday's 10-day peak at 1.1439. USD-CAD remain has been plying a narrow range so far today around the 1.3500 mark, holding just below yesterday's 18-month high at 1.3508.

    [EUR, USD]
    EUR-USD gained 0.4% today in printing a 1.1425 high, though the pairing has remained shy of yesterday's 10-day (pre-Fed) peak at 1.1439. We seeing the pairing as having entered a broadly sideways range phase as markets fathom the push of the populist political movement in Europe and the pull of a lower Fed tightening trajectory. While EUR-USD has been in a bear trend since April, downside momentum has abated notably in recent weeks. Support comes in at 1.1365-70, and resistance at 1.1445-47.

    [USD, JPY]
    USD-JPY posted a seven-week low at 111.80 as the Yen outperformed amid a risk-off backdrop, with stock markets in Asia tumbling and S&P 500 futures showing losses of over 0.5%, building on the closing losses seen on Wall Street yesterday after the Fed refrained from signalling a pause in its tightening cycle. The BoJ left rates on hold and also sounded cautious, as expected, which had little bearing on markets. Bigger picture, the pairing has been oscillating in a broadly sideways range centred around 112.50-113.00 for over two months now. The range lows at 111.37-40 are a key support. We are bearish and anticipate a break of this support on the view that global stock markets will entered a bear phase, correction after a near decade winning streak as the era of ultra-accommodative monetary policy unravels.

    [GBP, USD]
    Sterling has settled in the mid 1.2600s versus the dollar, has receded to neutral directional bias versus other currencies. The BoE's Monetary Policy Committee is in meeting, and will announce tomorrow. No policy changes are expected, and there are unlikely to be much change in guidance so soon after last month's quarterly Inflation Report, especially with Brexit uncertainty having put monetary policy in limbo. Regarding Brexit, all bets are off until the new year, with the UK Parliament winding down for the Christmas recess and with the London interbank market having entered into the year-end doldrums. The parliamentary vote on the Brexit deal and outline for a future relationship will take place in the week of January 14, before the legislated deadline of January 21. Our best guess remains that Parliament will vote down the deal and, of all the possible scenarios at that point, that a new EU referendum will be the path of least resistance.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.1300s. The cross remains comfortably above the two-and-a-half month low seen last Tuesday at 1.1225. The SNB remained firmly on hold at its quarterly policy meeting this month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD remain has been plying a narrow range so far today around the 1.3500 mark, holding just below yesterday's 18-month high at 1.3508. While the Fed has shifted to a lower tightening trajectory, oil prices and other industrial commodity prices have tumbled on global growth concerns. This backstop, which looks likely to sustain well into 2019, should keep USD-CAD bias towards the upside. Support comes in at 1.3420-13. The 2017 high at 1.3793 provides and upside waypoint.

    Paste link in email or IM