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By XE Market Analysis February 18, 2014 3:01 am
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    XE Market Analysis: Europe - Feb 18, 2014

    The yen weakened following the BoJ announcement that it will double a funding tool to Y7 tln, which was unexpected. USD-JPY jumped to a high of 102.74, the highest level seen this month, before settling around 102.55-102.60. EUR-JPY also hit a new high for the month of 140.86. The yen broke its usual inverse correlation with stock markets, which were higher in Japan and across Asia following the BoJ's decision.. Most other currencies were steady, though AUD-USD managed to log a high of 0.9080 before settling around 0.9040. EUR-USD continued to make time around the 1.3700 level. Cable consolidated in a narrow range just above 1.67.

    [EUR, USD]
    EUR-USD settled to quiet trade around 1.3700 after edging out a three-week high of 1.3725 on Monday, which reflected continued USD weakness after a run of sub-expectations data out of the U.S. We still prefer selling EUR-USD into strength as prevailing levels are starting to look rich against fundamentals. ECB's Coeure repeated that the central bank is ready to take "decisive action if required," and the possible use of a negative deposit rate will likely remain a topic in ECBspeak into the March policy meeting. In the U.S., meanwhile, we see that both the U.S. recovery and the Fed's tapering course as remaining on track. Resistance is marked at 1.3739 (the Jan-24 peak). Bigger picture, the multiple rejections from 1.38+ levels from last October had been associated with a notably drop in momentum following a six-month rally phase.

    [USD, JPY]
    The yen weakened following the BoJ announcement that it will double a funding tool to Y7 tln, which was unexpected. USD-JPY jumped to a high of 102.74, the highest level seen this month, before settling around 102.55-102.60. This marks a recovery from Monday's 11-day low of 101.39 that was seen after weaker than expected Japanese GDP. EUR-JPY also hit a new high for the month of 140.86. USD-JPY major support comes in at 100.00-100.55, the latter of which is the 200-day moving average. Strong resistance can be expected at 103.00.

    [GBP, USD]
    Cable has settled to a consolidation just above 1.6700 after diving on Monday to a low of 1.6694 after making new major-trend high of 1.6822 in early trade on Monday. The market reacted to BoE Governor Carney reiteration that interest rates will rise only when there is a sustainable growth in jobs and income, and also the latest storm-bashing that parts of the U.K. suffered over the weekend, which is the latest episode of bad weather that is likely curtail GDP performance in Q1. Up until now the pound had been in strong demand since the BoE raised its GDP forecasts earlier in the month, although we have been recommending shorting sterling as the BoE isn't in any rush to tighten policy with domestic pay awards remaining negative and inflation pressures waning. We also see both the U.S. recovery and the Fed's tapering course as remaining on track.

    [USD, CHF]
    EUR-CHF halted the recent decline toward the 1.2200 area as global stock markets rebound and the safe haven premium of the Swiss currency unwinds. The Dec-17 cycle low of 1.2167 has slipped back out of scope. Support is marked at 1.2206 (the Feb-13 low) and 1.2200. SNB-speak this month has affirmed that a removal of the 1.20 limit would only be considered if inflation was much higher had little impact. We wouldn't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    We continue to favour selling into USD-CAD gains as the price action from late January to early February confirmed a head-and-shoulders pattern topping formation. The recent run to a five-week peak of 1.1224 came with declining bullish momentum, which was a sign that the underlying trend was weakening. Projections target the 1.0800-1.0820 area. Initial resistance is at 1.10130-1.1050, while key resistance is marked at 1.1100, ahead of 1.1175 and 1.1200.

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