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By XE Market Analysis February 11, 2015 2:38 am
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    XE Market Analysis: Europe - Feb 11, 2015

    EUR-USD continues to ply a relatively narrow range that's been oscillating around the 1.1300 level. Grexit concerns remain to the forefront with the focus today on the Eurogroup meeting on Greece. Hopes for a quick deal ahead of tomorrow's EU leaders summit will likely be disappointed. USD-JPY edged out a fresh one-month high at 119.66 in early European trade today after breaking yesterday's peak at 119.22 during Asian trade, which was quiet with Japanese markets closed for the National Foundation holiday. This extends the gains seen since last Friday's solid employment report, which boosted the dollar's yield advantage versus the yen and other currencies. EUR-CHF has settled in the upper 1.04s after trading as low at 1.0414 earlier this week amid general euro weakness.

    [EUR, USD]
    EUR-USD continues to ply a relatively narrow range that's been oscillating around the 1.1300 level. Grexit concerns remain to the forefront with the focus today on the Eurogroup meeting on Greece. Hopes for a quick deal ahead of tomorrow's EU leaders summit will likely be disappointed. Athens has been swinging between a conciliatory tone on its first foreign visits and a hard-line stance in speeches intended for the domestic audience, but it is clear that so far both sides are not willing to make major concessions. Ultimately, both sides are eager to keep in the Eurozone and some sort of deal is likely to emerge, but that is unlikely to happen this week and the uncertainty will mean ongoing volatility in peripheral yields and pressure on the euro. Yield differentials also remain in the dollar's favour following the strong U.S. jobs report last week, over 163 bp at the 10-year maturity level versus 145 bp seen been the payrolls data last Friday. 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 1.1359-60 and 1.1398 (20-day moving average).

    [USD, JPY]
    USD-JPY edged out a fresh one-month high at 119.66 in early European trade today after breaking yesterday's peak at 119.22 during Asian trade, which was quiet with Japanese markets closed for the National Foundation holiday. This extends the gains seen since last Friday's solid employment report, which boosted the dollar's yield advantage versus the yen and other currencies. We continue to anticipate that USD-JPY will be biased higher in the bigger picture as 'Abenomics' policies remain alive and well. A Bloomberg survey late last month found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. Key resistance is marked at 119.87-96 (which encompasses a series of form daily lows), support at 119.46-50.

    [GBP, USD]
    We expect sterling to hold up better against the euro than the dollar 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 EUR-GBP will 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 has settled in the upper 1.04s after trading as low at 1.0414 earlier this week amid general euro weakness. 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 clocked an eight-day high at 1.2624 yesterday amid a fresh bound of oil price weakness and general U.S. dollar firmness as markets amid favourable yield differential movements, sparked by last Friday's solid U.S. jobs report. We expect a retest of the trend high at 1.2799. The two-week low at 1.2351, seen last week, is now viewed as a key 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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