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By XE Market Analysis December 30, 2014 3:02 am
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    XE Market Analysis: Europe - Dec 30, 2014

    The euro has traded lower in quiet markets in the pre-European open session in Asia. 'Grexit' concerns and expectations that the ECB is on course to announce a QE program at its Jan-22 policy meeting have been weighing. EUR-USD fell to a 29-month low at 1.2124, bringing the July 2012 major-cycle low at 1.2042 into scope. EUR-JPY, meanwhile, made a two-week low at 145.82. The decline in the euro comes as the 10-year Greek bond's yield differential extended to 908 bp, out from 795 bp over the 10-year Bund benchmark ahead of yesterday's presidential election result. Elsewhere, weaker stock markets in Asia underpinned the yen, which drove USD-JPY to the low 120s, bringing recent range lows at 119.96-120.09 into play. A breach of these would suggest potential for a test of support at 119.31 and 119.00. AUD-USD traded a narrow 0.8124-43 range.

    [EUR, USD]
    We remain EUR-USD bearish, and look for a move on the July 2012 low at 1.2042. There has been a fresh shift in the dollar's yield advantage this week with 10-year U.S. T-note yield differential over the equivalent bund has widening to new cycle highs near 165 bp, up from levels around 147-48 bp seen before the Fed announcement on Dec-17. The market, meanwhile, is speculating that the ECB will announce QE at its Jan-22 policy meeting, with concerns about disinflation outweighing the recent improvement in survey data. 'Grexit' concerns have also reappeared in the bearish euro narrative. EUR-USD resistance is marked at 1.2200-21 and 1.2272-75, support at 1.2124-25 and 1.2100.

    [USD, JPY]
    Weaker stock markets in Asia (the last trading day of the year in the case of the Japan) underpinned the yen today, driving USD-JPY to the low 120s and bringing recent range lows at 119.96-120.09 into play. A breach of these would suggest potential for a test of support at 119.31 and 119.00. A Reuters survey on Monday found that Japanese companies are expecting that the pace of yen declines will abate during 2015, anticipating that the low will be 125.0 against the dollar and the high will be 112.0. USD-JPY resistance is marked at 120.82 (Dec-23 high) and 121.85 (trend high), key support at 119.47-50.

    [GBP, USD]
    Cable remains in the grip of a bear trend, which has been persisting since the July cycle high at 1.7192. Resistance is now marked at 1.5634 (20-day moving average) and 1.5700, support at 1.5500 and 1.5486. The August 2013 low at 1.5102 should be in the crosshairs of bears. The drop in UK inflation to a six-year low of 1.0% has strengthened the dovish voices at the BoE's MPC.

    [USD, CHF]
    EUR-CHF has established a range below 1.2050 after spiking to a 1.2096 peak Dec-18 after the SNB implemented a negative interest rate of -0.25%. SNB member Zurbruegg recently argued that a negative interest rate would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. SNB boss Jordan had said recently that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary.

    [USD, CAD]
    USD-CAD has settled to a consolidation around 1.1600 amid a backdrop of steadier oil prices. We anticipate that the CAD-bearish narrative, based on weakening oil price trend, is likely to sustain for a time yet. Support is marked at 1.1550-65.

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