Home > XE Currency Blog > XE Market Analysis: Europe - Feb 19, 2019

AD

XE Currency Blog

Topics6131 Posts6176
By XE Market Analysis February 19, 2019 3:32 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4185
    XE Market Analysis: Europe - Feb 19, 2019

    USD-JPY edged out a fresh high, at 110.71, which is the loftiest level seen since Friday, in what has been directionally-limited trading in forex and global equity markets so far today. The MSCI Asia-Pacific (ex-Japan) stock index is fractionally lower, although near the four-month highs seen last Wednesday. Market participants are waiting for clarity on the U.S.-China trade situation, with hopes generally high that the two sides will reach a compromise at this week's round of discussions, which will commence today in Washington DC. The optimism is reflected by the 6.6% rise China's Shanghai Composite equity index since the start of February. BoJ Governor Kuroda, meanwhile, did some eyebrow lifting today by doing his version of a dovish turn, saying that if the Yen were to strengthen and was "having an impact on the economy and prices," and if it was considered necessary to achieve our price target, "we’ll consider easing policy." This sparked a dip in both the Yen and JGB yields, though the impact has been limited as this is pretty much consistent with ongoing policy, and was less noteworthy compared to the dovish turns at the ECB and, more especially, the Fed. Elsewhere, EUR-USD has settled to an oscillation of the 1.1300 level, consolidating after rebounding from the three-month low seen on Friday at 1.1234.

    [EUR, USD]
    EUR-USD has settled to an oscillation of the 1.1300 level, consolidating after rebounding from the three-month low seen on Friday at 1.1234. The low had been seen set amid speculation that the ECB is heading for another blast of Targeted Long-Term Refinancing Operations (TLTRO) to buoy bank lending. ECB's Olli Rehn said in a German press interview published over the weekend that recent data showed a weakening in the Eurozone economy, while his colleague Villeroy spoke yesterday of a "significant" slowdown afoot. The comments confirm that the ECB could change its guidance on rates if the slowdown proves persistent, which, as Villeroy pointed out, also depends on whether politicians can resolve the current uncertainty. TLTROs clearly remain an option if things got worse, but so far the message on that front has been that the ECB needs a solid monetary policy reason to consider that, and so far it seems markets seem more keen on the idea than the central bank. The Fed, meanwhile, is also amid a dovish phase. Markets are expecting this Wednesday's release of the Fed's minutes from the late-January FOMC meeting to show policymakers in a cautious mood, and also signal a deceleration in the pace of post-QE balance sheet shrinkage. Overall, we expect the EUR-USD to proceed with a flat-to-lower directional bias. Resistance comes in at 1.1335-40.

    [USD, JPY]
    USD-JPY edged out a fresh high, at 110.71, which is the loftiest level seen since Friday. The MSCI Asia-Pacific (ex-Japan) stock index is fractionally lower, although near the four-month highs seen last Wednesday. Market participants are waiting for clarity on the U.S.-China trade situation, with hopes generally high that the two sides will reach a compromise at this week's round of discussions, which will commence today in Washington DC. The optimism is reflected by the 6.6% rise China's Shanghai Composite equity index since the start of February. Any good news on this front would have the potential to a risk-on theme in global markets, which would likely spark a rally in USD-JPY. BoJ Governor Kuroda, meanwhile, did some eyebrow lifting today by doing his version of a dovish turn, saying that if the Yen were to strengthen and was "having an impact on the economy and prices," and if it was considered necessary to achieve our price target, "we’ll consider easing policy." This sparked a dip in both the Yen and JGB yields, though the impact has been limited as this is pretty much consistent with ongoing policy, and was less noteworthy compared to the dovish turns at the ECB and, more especially, the Fed. USD-JPY has support at 109.90-94, and resistance at 111.05-07.

    [GBP, USD]
    Cable has settled near 1.2900, aided up from last week's 1.2773 low by bouts of dollar weakness that have been seen in recent days. Data out of the UK yesterday showed January house price growth to be at the weakness y/y rate since 2009, at just 0.2%, according to Rightmove. Stretched affordability, higher purchase taxes for rental properties, along with Brexit uncertainty were blamed. On the Brexit front, news that seven Labour party members quit to become a group of independents raised eyebrows, although long since rumoured, and the development highlights the Brexit-caused fractures that have been afflicting both of the principal parties in the UK. A central reason, if not the central reason, why Prime Minister May has refrained from making compromises that would win both the support of the majority in parliament and Brussels (which would involve remaining in the EU's customs union), is the fear this would drive an irrevocable split in her Tory party. Brussel's today once again affirmed that the EU won't reopen negotiations on the existing Withdrawal Agreement. The next key data for the calendar is February 27, when parliament will vote on the government's plan, if there is one, or alternatives. It is also possible that parliament might at that juncture vote to rule out a no-deal Brexit scenario. The continued lack of clarity, and the continued threat of a no-deal Brexit scenario, should maintain the 13-15% discount the pound has been trading at in trade-weighted terms since the vote to leave the EU in June 2016.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.1300s after correcting from a six-day high that was seen last Tuesday at 1.1406. The price action has continued a phase of relatively high volatility that the cross has been experiencing. Since early January there have been several bouts of pronounced underperformance in the Swiss franc, often accompanied by talk/suspicions of SNB intervention. SNB vice president, Zurbruegg, said last month that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate." SNB Chairman Jordan said recently that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario.

    [USD, CAD]
    USD-CAD has set anchor in the mid 1.3200s, consolidating at lower levels after correcting from the three-week seen last week at 1.3340. A rally in oil prices, which has lifted the WTI benchmark to three-month highs above $56.70, has underpinned the Canadian Dollar. There are also market expectations for the release of the Fed's minutes to show the central bank to be lessening the rate of post-QE balance sheet shrinkage. USD-CAD has resistance at 1.3266-70, and support at 1.3196-98.

    Paste link in email or IM