Home > XE Currency Blog > XE Market Analysis: Europe - Feb 18, 2020

AD

XE Currency Blog

Topics7137 Posts7182
By XE Market Analysis February 18, 2020 4:13 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5061
    XE Market Analysis: Europe - Feb 18, 2020

    The yen and Swiss franc firmed as risk-off positioning took a grip after Apple warned that it would missed Q1 revenue guidance, pointing to a slow rebound in factory output in China and forcing a rethinking on the likely impact that the measures being taken to stem contagion of the coronavirus have been having. Regional currencies in Asia have taken a hit, as have the dollar bloc currencies, while dollar has traded mixed. The biggest movement out of the main currency pairings and associated cross rates have, not surprisingly, been AUD-JPY and NZD-JPY, which fell by over 0.5%. USD-JPY retreated to a five-day low at 109.65, while AUD-JPY posted an eight-day low at 73.28. USD-CAD lifted above Monday's high in making 1.3255, with the Canadian dollar weakening concomitantly with a 1%-plus drop in oil prices. Elsewhere, EUR-USD eked out a fresh 34-month high at 1.0823, even though the pair has only seen a 15-pip range so far today. Cable ebbed back to a five-day low at 1.2980, with the pound remaining soft amid signs that the UK government isn't likely to pursue a fiscally expansive policy course as was being speculated following last week's surprise appointment of Rishi Sunak as the new chancellor (finance minister).

    [EUR, USD]
    EUR-USD eked out a fresh 34-month high at 1.0823 in Asia, even though the pair has only seen a 15-pip range so far today (as of the early London session). The dollar has been underpinned by the relative robustness of the U.S. economy, and continues to register as the strongest main currency on the year-to-date, with gains of around 5% versus the weakest, the Australian and New Zealand dollars. EUR-USD pair has been trending lower since early 2018, dropping from levels near 1.2500. Although the Fed has backed out of its tightening phase after hiking rates three times last year, the dollar has been finding an underpinned via safe haven demand for Treasuries. The Eurozone economy, meanwhile, has been showing signs of sputtering.

    [USD, JPY]
    The yen has firmed up amid the latest bout of risk-off positioning in markets, sparked by Apple warning that it would missed Q1 revenue guidance, pointing to a slow rebound in factory output in China and forcing a rethinking on the likely impact that the measures being taken to stem contagion of the coronavirus have been having. USD-JPY retreated to a five-day low at 109.65, while AUD-JPY, a forex market proxy on China, posted an eight-day low at 73.28. Sources cited by Reuters said that the BoJ is likely to signal that its goal of reaching its 2% inflation target will remain out of reach for longer, as a consequence of the virus, though this had little impact in offsetting safe have demand for the yen. Japan's Q4 GDP data, released on Monday, disappointed, showing a 1.6% q/q contraction versus the median forecast for -0.9%. Q3 data were also revised down, and the data came amid expectations for a dismal current quarter performance given the impact of measures to contain the virus outbreak in China and Japan, and elsewhere.

    [GBP, USD]
    The pound has come under some pressure over the last day amid doubts about the UK's budget. Cable ebbed to a five-day low at 1.2980. There are reports, circulating since Friday, that new Chancellor Rishi Sunak has ordered ministers to come up with ways to cut the 2020-21 budget by 5%, sticking to Prime Minister Johnson's original plan. There had been speculation that the unexpected resignation of the former Chancellor of the Exchequer, Sajid Javid, was a sign of there being a course to looser fiscal policy. The plan, however, seems to be to increase government spending in certain areas -- health, policing and infrastructure -- but financed by savings elsewhere. There are also reports, also in circulation since late last week, although not officially confirmed, that the planned budget announced on March 11th will be delayed. This backdrop explains the pound's heaviness, with the currency now having retraced most of the 1%-odd gain seen last week. Brexit remains a worry, too, with Johnson's government having signalled that it wants divergence from the EU (increasing the risk that the UK could leave the Brexit transition period at the end of the year without a new trade deal with the EU, which would see the UK transition to trading solely on less-favourable WTO terms). UK preliminary PMI survey data for February, due on Friday, is also expected to show an abatement in activity following January's post-election bounce.

    [USD, CHF]
    EUR-CHF has remained heavy since printing a near-five-year-low at 1.0609 last week. The pronounced losses the cross has been seeing largely a product of safe-haven demand for the franc. The U.S. last month added Switzerland to its list of currency manipulators. The move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD lifted above Monday's high in making 1.3255, with the Canadian dollar weakening concomitantly with a 1%-plus drop in oil prices today. Benchmark WTI prices are now down by nearly 2% from the highs seen yesterday. This comes with risk aversion having taken a fresh grip on global markets, prompted by Apple's warning that it will miss Q1 revenue targets. The other dollar bloc currencies, which are all characterised as being commodity currencies, have also been underperforming.

    Paste link in email or IM