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By XE Market Analysis February 12, 2015 2:10 am
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    XE Market Analysis: Europe - Feb 12, 2015

    EUR-USD briefly spiked to the 1.1350 area following a false headline that Greece had reached an agreement in principle at the Eurogroup meeting, and subsequently reversed back to low 1.13s as it became clear that this was not in fact the case. The group's Dijsselbloen said that a way forward had been agreed but that discussions would continue as a "little more time" is needed. USD-JPY clocked a six-week high of 120.47 in early Asia-Pacific trade before settling lower, finding support at 119.98-120.00. The Jan-2 peak at 120.74 provides the next target/resistance level. AUD-USD tumbled to a one-week low of 0.7644, dropping around 70 pips following the Australian employment report for January, which showed unemployment spiking to a 13-year high of 6.4%, up from 6.1% in December. The employment change of -12.2K (versus an expected -5K) was overlooked by markets, as was ongoing issues about the reliability of the data. The data, rather, maintained speculation for a follow-up RBA rate cut, and brings AUD-USD's Feb-3 trend low at 0.7626 into focus.

    [EUR, USD]
    EUR-USD briefly spiked to the 1.1350 area following a false headline that Greece had reached an agreement in principle at the Eurogroup meeting, and subsequently reversed back to low 1.13s as it became clear that this was not in fact the case. The group's Dijsselbloen said that a way forward had been agreed but that discussions would continue as a "little more time" is needed. Ultimately, both sides are eager for Greece to remain in the Eurozone, and some sort of deal is likely to emerge, but that is unlikely to happen this week and the uncertainty should maintain volatility in peripheral yields and pressure on the euro. Grexit concerns aside, yield differentials remain in the dollar's favour following the strong U.S. jobs report last week, now over 163 bp at the 10-year maturity level versus 145 bp seen been the payrolls data last Friday. We also 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 1.1384 (20-day moving average).

    [USD, JPY]
    USD-JPY clocked a six-week high of 120.47 in early Asia-Pacific trade before settling lower, finding support at 119.98-120.00. The Jan-2 peak at 120.74 provides the next target/resistance level. Recent price action is constructive, technically, with both the 20- and 50-day moving averages broken in recent days, along with a key resistance region at 119.87-96 (which encompassed a series of former daily lows). Bulls should be looking for a test of the Dec-8 trend peak at 121.85. Japanese data today didn't have much market bearing, including January PPI, which came in at -1.3% m/m (expected -0.6%), and December core machinery orders, which rose 11.4% y/y (+5.9% expected). We continue to anticipate that USD-JPY will remain biased higher in the bigger picture, concomitantly with 'Abenomics' policies. A Bloomberg survey late last month found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. Key support is marked at 119.87-96 and 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 around 1.0500 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 logged a 10-day peak at 1.2697 on Wednesday amid a fresh dip in front-month NYMEX crude prices below $49. The U.S. dollar is also outperforming again amid favourable yield differential movements, which were sparked by last Friday's solid U.S. jobs report. We expect a test 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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