Home > XE Currency Blog > XE Market Analysis: Europe - Feb 19, 2020

AD

XE Currency Blog

Topics7137 Posts7182
By XE Market Analysis February 19, 2020 4:15 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5061
    XE Market Analysis: Europe - Feb 19, 2020

    The yen has ebbed back after rising yesterday, with global markets once again finding optimism from news of a slight decline in coronavirus cases in China, although official data is being viewed with a good degree of scepticism by most. Asian stock markets lifted, and U.S. index futures is showing modest gains. USD-JPY lifted and surpassed last week's peak by a pip in making a one-month high at 110.14. EUR-JPY also turned higher, though remained below its Tuesday high, while AUD-JPY logged a two-day peak at 73.83 as risk-off positioning unwound. USD-CAD posted a two-day low at 1.3320, with the Canadian dollar and other dollar bloc currencies outperforming amid the return of risk appetite in markets. Oil prices rallied by nearly 1%. AUD-USD posted a high at 0.6704, extending a recovery from the nine-day low of yesterday, at 0.6673, though the pair remained comfortably below Tuesday's peak. EUR-USD traded fractionally firmer, nudging back above 1.0800 after yesterday printing a 34-month low at 1.0785. Cable traded narrowly, above Tuesday's six-day low at 1.2970. Focus will remain on the coronavirus outbreak. Trying to call the point of peak contagion, and thereby the peak of economic disruption, is tough, though the consensus seems to be that it will happen in March or April, aided by the arrival of warmer weather in the northern hemisphere (although scientists aren't exactly sure if warm weather will have the same quelling effect as it does on flu and cold viruses).

    [EUR, USD]
    EUR-USD traded fractionally firmer today, nudging back above 1.0800 after yesterday printing a 34-month low at 1.0785. EUR-JPY and EUR-CHF, among other euro crosses have also recouped some today, after the former yesterday hit a four-month low and the latter a near five-year low. The euro has been on underperforming list of currencies over the last 10 days or so. A much worse than expected ZEW investor confidence reading out of Germany, yesterday, which fell to 8.7 in the headline reading for February, down from January's 26.7, fitted the prevailing view of a sputtering Eurozone economy. The dollar, meanwhile, 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 4.5%-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.

    [USD, JPY]
    The yen has ebbed back after rising yesterday, with global markets once again finding optimism from news of a slight decline in coronavirus cases in China, although official data is being viewed with a good degree of scepticism by most. Asian stock markets lifted, and U.S. index futures is showing modest gains. USD-JPY lifted and surpassed last week's peak by a pip in making a one-month high at 110.14. EUR-JPY also turned higher, though remained below its Tuesday high, while AUD-JPY logged a two-day peak at 73.83 as risk-off positioning unwound. USD-CAD posted a two-day low at 1.3320, with the Canadian dollar and other dollar bloc currencies outperforming amid the return of risk appetite in markets. Oil prices rallied by nearly 1%. Trying to call the point of peak contagion, and thereby the peak of economic disruption, is tough, though the consensus seems to be that it will happen in March or April, aided by the arrival of warmer weather in the northern hemisphere (although scientists aren't exactly sure if warm weather will have the same quelling effect as it does on flu and cold viruses). Japan's Q4 GDP data, released on Monday, disappointed, showed a 1.6% q/q contraction versus the median forecast for -0.9%. Q3 data were also revised down, and the figures came amid expectations for a dismal current quarter performance given the impact of measures to contain the virus outbreak in China, Japan, and elsewhere.

    [GBP, USD]
    Cable has settled around the 1.3000 mark, above the six-day low seen yesterday at 1.2970. News, yesterday, that that the government's 2020-21 budget presentation won't be delayed (as had been speculated), and data showing a new record high in employment in the UK (amid an above-forecast 180k increase in employment), gave sterling a boost. Bigger picture, Brexit remains a worry, 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. The EU has stated that there can be no broad free trade agreement with the UK unless Britain is in close regulatory alignment. Focus will also fall on UK preliminary PMI survey data for February, due on Friday, which is 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 low was matched yesterday. The pronounced losses the cross has been seeing of late are 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 posted a two-day low at 1.3320, with the Canadian dollar and other dollar bloc currencies outperforming amid the return of risk appetite in markets. Oil prices rallied by nearly 1%, reversing yesterday's losses. The Canadian currency will likely remain to near-term volatility as long as the coronavirus contagion remains in a state of increasing spread. Canada releases CPI figures today, and retail sales data on Friday . CPI is expected to hold at a 2.2% y/y rate in January from the 2.2% y/y pace in December. CPI is seen rising 0.1% (m/m, nsa) after the flat (0.0%) reading in December, as January tends to have a sizable seasonal upswing. However, there was a notable pull-back in gasoline prices this January. Retail sales are seen rising 0.1% in December after the 0.9% gain in November.

    Paste link in email or IM