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By XE Market Analysis February 4, 2014 2:45 am
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    XE Market Analysis: Europe - Feb 04, 2014

    The yen remained an outperformer as the stock rout continued. Yesterday's disappointing U.S. manufacturing ISM report, the six month low in China PMI data, and last week's second Fed taper, have collectively stoked the risk aversion theme. Japan's Economy Minister Amari said that investors are overreacting to the Fed's tapering, but his words of wisdom had little market impact. Fed's Fisher said the stock market turmoil does not change his support for the tapering. Both USD-JPY and EUR-JPY dropped to respective two-month lows of 100.75 and 136.23. Sterling continued to underperform, with GBP-JPY hitting fresh trend lows, Cable making a six-week low of 1.6257 and EUR-GBP scaling to a two-week high of 0.8326. The USD was softer against most currencies, with sterling the notably exception. EUR-USD popped to a peak of 1.3539, while AUD-USD rose after the RBA delivered a comparatively less dovish statement following its February policy meeting compared to January. The Aussie logged a three-week high of 0.8893.

    [EUR, USD]
    EUR-USD has consolidated to higher levels around 1.3500-1.3540, moving back above the 200-day moving average, but the big picture technical view still looks bearish. Last week closed under the 200-day moving average for the first time since last July, supporting bearish technical arguments for further losses. Projections from a two-month trendline imply a target of 1.3445-1.3450. Resistance comes in at 1.3550 and 1.3574-1.3581 (encompasses the Jan-31 high and the 20-day moving average).

    [USD, JPY]
    The yen has remained an outperformer as the stock rout continued. Yesterday's disappointing U.S. manufacturing ISM report, the six month low in China PMI data, and last week's second Fed taper, have collectively stoked the risk aversion theme. Japan's Economy Minister Amari said that investors are overreacting to the Fed's tapering, but his words of wisdom had little market impact. Both USD-JPY and EUR-JPY dropped to respective two-month lows of 100.75 and 136.23. Big USD-JPY support comes in at 100.00-100.36, the latter of which is the 200-day moving average. Initial resistance levels come in at 101.76-102.00, while trend resistance is above here at 102.40. Resistance can also be expected at 102.80-103.00.

    [GBP, USD]
    Cable's double rejection from forays above 1.6600 in late January has left a bearish tone in place, with the pair subsequently breaching both its 20- and 50-day moving averages. The breach of 1.6395-1.6400 and the January low of 1.6307 this week adds to the bearish view. We target the 1.6200-1.6220 area. Resistance is marked at 1.6300, though stronger resistance is at 1.6400-1.6440, which encompasses a cluster of former daily highs and lows, and the 50-day moving average.

    [USD, CHF]
    EUR-CHF sank to a six-week low as risk aversion found fresh impetus from a six-month low in official China manufacturing PMI data. This came despite SNB-speak affirming that a removal of the 1.20 limit would only be considered if inflation was much higher. The breach of key support at 1.2200 brings the Dec-17 cycle low of 1.2167 into scope. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD looks to be in the early stages of forming a topping formation. Last week's run to a five-week peak of 1.1224 came with declining bullish momentum, which is a sign that the underlying trend is weakening. Resistance is marked at 1.1175 and 1.1200, which would look to hold on a daily closing level basis to confirm potential of a topping formation in development. Key support is at 1.1000-1.1030, which encompasses as cluster of recent daily lows and highs.

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