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By XE Market Analysis February 10, 2015 2:36 am
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    XE Market Analysis: Europe - Feb 10, 2015

    EUR-USD has remained in the low 1.13s, capped by the latest spike in Grexit concerns. Yesterday's low at 1.1270 looks vulnerable, while yesterday's high at 1.1359 looks like resistance. Yield differentials remain in the dollar's favour following the strong U.S. jobs report on Friday, with the 10-year T-note over Bund spread pushing toward cycle highs again, having tested 160 bp. USD-JPY has entrenched in consolidation in the mid-118s following Friday's run to a four-week peak at 119.22. Japan's December Tertiary Industry index came in at -0.3% m/m, below the median forecast for 0.0%. Cable has managed to lift to the mid-152s after probing 1.5200 yesterday, while EUR-GBP has dipped back below 0.7450. UK BRC retail sales rose 0.2% y/y on the same store basis, below expectations for a 0.7% gain. USD-CAD has remained settled around 1.25 handle, with broadly steadier oil prices curtailing CAD-bearish impetus. AUD-USD lifted above Monday's high in making a peak of 0.7841. The Aussie was boosted by soft inflation data out of China, where January CPI fell to 0.8% y/y (1.0% expected), which boosted PBoC rate speculation.

    [EUR, USD]
    EUR-USD has remained in the low 1.13s, capped by the latest spike in Grexit concerns. Yesterday's low at 1.1270 looks vulnerable, while yesterday's high at 1.1359 looks like resistance. Yield differentials remain in the dollar's favour following the strong U.S. jobs report on Friday, with the 10-year T-note over Bund spread pushing toward cycle highs again, having tested 160 bp. We expect the upcoming implementation of the ECB's QE program will grind EUR-USD to fresh lows, toward parity over time. The 11-year low at 1.1098, seen on Jan-26, offers an interim target. Resistance is at 1.1359 and 1.1423 (20-day moving average).

    [USD, JPY]
    USD-JPY has entrenched in consolidation in the mid-118s following Friday's run to a four-week peak at 119.22 in the wake of the strong U.S. payrolls report. We still that USD-JPY will be biased higher in the bigger picture as 'Abenomics' policies remain alive and well. A Bloomberg survey last week found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. Resistance is marked at 119.87-96, support at 118.70-72.

    [GBP, USD]
    Cable has managed to lift to the mid-152s after probing 1.5200 yesterday, while EUR-GBP has dipped back below 0.7450. We expect sterling to hold up better against the euro after a solid patch of UK data, highlighted by the January PMI surveys that showed all three sectors (manufacturing, construction and services) beating expectations, mostly reversing unexpected weakness in December and pointing to encouraging growth momentum in Q1. Incoming data are expected to paint a similar picture. We are expecting that EUR-GBP with grind lower an test of 0.7000 in time, with the Jan-26 low at 0.7406 offering an interim target. Resistance is at 0.7450-60.

    [USD, CHF]
    EUR-CHF is trading lower, back under 1.05 amid a generally softer euro. SNB's Jordan said over the weekend that the central bank is prepared to intervene in EUR-CHF if necessary, that, "We are observing the exchange rate situation as a whole ... If necessary we are active," but, " ... we do not speak about our transactions." He said that the franc remains "clearly overvalued" at around 1.0500, but said refrained to comment on what it considers the preferred franc levels or what it sees as a fair value. An "informed source" of the Tages Anzeiger newspaper last week said that the SNB is initiating a "soft floor" in EUR-CHF at 1.05-1.10. SNB's vice-chairman Danthine in late January that the SNB was still "fundamentally prepared to intervene in the foreign exchange market," and that Singapore's SGD basket policy "deserved closer examination." The SNB was widely reported to have intervened last Thursday from levels near 1.0500..

    [USD, CAD]
    USD-CAD has settle around 1.25 handle in recent sessions. The two-week low of 1.2351, seen last week, is a key near-term support. Overall, we still see there is more to come in the bull trend. Markets are speculating that the BoC will make another rate cut, and some energy analysts are expecting NYMEX oil prices to trade below the 2009 NYMEX crude low at $40.68 before the bear trend lows itself out, which would further crimp Canada's terms of trade. USD-CAD's August 2009 high at 1.3063 provides a big-picture target.

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