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By XE Market Analysis February 16, 2018 3:22 am
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    XE Market Analysis: Europe - Feb 16, 2018

    Another day, another decline in the dollar, which logged a new 38-month low versus the euro, at 1.2554, and a 15-month low against the yen, at 105.54. The USD index (DXY) is down by 0.3%, 88.37, earlier clocking a 37-month low at 88.33. The greenback has also seen fresh lows against most newly developed and developing world currencies. Continued gains in global stock markets have continued to inspire dollar selling, as investors seek out higher yielding opportunities. USD-JPY declines came despite the nomination of Kuroda for another term at the helm of the BoJ, along with nominations for the two deputy governor positions of inflationist candidates, Amamiya and Wakatabe.

    [EUR, USD]
    EUR-USD ascended above the January high on route to a 38-month high at 1.2556, with the pair making today the sixth consecutive up session. Dollar weakness has continued to drive the upward bias, with the U.S. currency underperforming amid a backdrop of reviving risk appetite in global markets. The euro has been trading more mixed relative to other currencies. More of the same looks likely, at least while the risk-on theme lasts. EUR-USD has trend support at 1.2457-58.

    [USD, JPY]
    USD-JPY climbed to a new 15-month low against the yen, at 105.54. Continued gains in global stock markets have continued to inspire dollar selling, as investors seek out higher yielding opportunities. USD-JPY declines came despite the nomination of Kuroda for another term at the helm of the BoJ, along with nominations for the two deputy governor positions of inflationist candidates, Amamiya and Wakatabe. We expect more of the same while the prevailing risk-on vibe persists. USD-JPY has trend resistance 106.35-38.

    [GBP, USD]
    Cable has posted an 11-day high of 1.4150 on the back of continued dollar weakness. The pound has also been recouping from the five-week low it saw versus the euro yesterday. One market narrative is focusing on reports from earlier in the week alleging that French officials have been quietly advising EU Brexit negotiators to tone down the adversarial rhetoric lest it leads to a toxic atmosphere of bad faith. This follows remarks by EU chief Brexit negotiator Barnier's remarks last Friday, which riled hard Brexit advocates in the British government. Cable is presently near the midway point of the range that's been seen over the last three weeks. The range highs at 1.4345, mark key resistance. The next UK data of note arrives today, with the release of January retail sales date. We expect a 0.6% m/m rebound (median 0.5%) after December's outsized 1.5% m/m contraction.

    [USD, CHF]
    EUR-CHF broke lower last week, leaving a four-month low at 1.1446. The cross has since settled in the lower 1.1500s. We expect directional bias to remain to the downside while the risk-off phase persists. The cross is seeing its biggest correction seen since the Swiss franc started to trend lower in mid last year, reflecting EUR-USD declines amid dollar outperformance and euro selling amid the ECB's evident disquiet about the extend of the euro's recent rally, which looks to have had a dampening impact on hawkish voices at the ctral bank. There is also some concern appearing in market research notes about the Italian election in early March, given the popularity of anti-EU Northern League.

    [USD, CAD]
    USD-CAD ebbed to 10-day lows in the mid 1.24s. The revival of risk appetite on global markets, which has lifted oil prices, has been a positive for the Canadian dollar just as it has been a negative lead of the U.S. dollar. This backdrop should keep USD-CAD biased lower for now, though we think that the near decade era of low volatility, near constant equity market gains, is over. Upcoming data out of Canada include the December manufacturing report (Friday), expected to reveal a 0.5% gain in shipment values after the 3.4% surge in November. Before this, the January existing home sales report is on tap later today. USD-CAD has support at 1.2435-26.

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