Home > XE Currency Blog > XE Market Analysis: Europe - Feb 20, 2014

AD

XE Currency Blog

Topics7368 Posts7413
By XE Market Analysis February 20, 2014 3:03 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5292
    XE Market Analysis: Europe - Feb 20, 2014

    Risk-off ensued following disappointing China data, with the HSBC-Markit flash manufacturing PMI underwhelming at 48.3 in February, below the median expectation for 49.5. Japan's January trade data also showed the deficit widening more than forecast, to Y2.97 bln (a new record), while Moody's warned that China slowdown is posing risks for the likes of South Korea, Hong Kong, and Singapore. The situation in the Ukraine remains tense, although the President's office stated that leaders have agreed on a truce. The risk averse backdrop was expressed in FX markets by yen and Swiss franc outperformance and, at the opposite end of the spectrum among the main currencies, underperformance in the Australian and New Zealand dollars. USD-JPY dipped to a three-day low of 101.77. EUR-JPY was heavy, but managed to remain just above Wednesday's 139.99 low. BoJ's Morimoto said that Japan's economic growth was exceeding potential ahead of April's sales tax hike, while the February Reuters Tankan survey dipped for manufacturers. EUR-USD oscillated around 1.3570, remaining within Wednesday's range. AUD-USD dove to a six-day low of 0.8937. EUR-CHF traded below 1.2200 for the first time since Feb-5.

    [EUR, USD]
    EUR-USD settled in the mid-1.37s after making a high for the year of 1.3773 on Wednesday. Heaviness in EUR-JPY and EUR-CHF, which has been driven by strength in the yen and Swiss franc as risk aversion took hold following weak China PMI data, have weighed on EUR-USD somewhat. Good selling interest is seen overhanging EUR-USD from 1.3775 and into 1.3800. We prefer selling EUR-USD into strength as prevailing levels are starting to look rich against fundamentals. ECB's Coeure repeated this week 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, despite recent softer data. Bigger picture, the multiple rejections from 1.38+ levels from last October had been associated with a notable drop in momentum following a six-month rally phase.

    [USD, JPY]
    The yen has been bid amid the latest bout of risk-off following disappointing China PMI data, while Japan's January trade data also showed the deficit widening more than forecast, to Y2.97 bln (a new record). Moody's also warned that China slowdown is posing risks for its neighbours. USD-JPY dipped to a three-day low of 101.77. BoJ's Morimoto said that Japan's economic growth was exceeding potential ahead of April's sales tax hike (which we think is partly down to front-loading of consumption), while the February Reuters Tankan survey dipped for manufacturers. Support is marked at Monday's 11-day low of 101.39, which was posted after weaker than expected Japanese GDP data. Major support comes in at 100.00-100.59, the latter of which is the 200-day moving average. Resistance is marked by Tuesday's high of 102.74, which was the highest level seen this month.

    [GBP, USD]
    Sterling has found its feet after correcting to a low of 1.6637 on Wednesday, though we anticipate further sterling underperformance in the period ahead. The unexpected pop in unemployment to 7.2% from 7.1% and the dip in January CPI to a new cycle low of 1.9% y/y supports the BoE's prevailing dovish policy stance. Cable support is at 1.6645-50, which encompasses the Feb-14 low. Resistance at 1.6700-10 and 1.6740.

    [USD, CHF]
    EUR-CHF traded below 1.2200 for the first time since Feb-5 as risk aversion stepped up following a disappointing China PMI report for February. The break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope. SNB-speak this month reaffirmed the strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD surged through resistance is at 1.10130-1.1050 on Wednesday following fresh weak data out of Canada, while the spike in risk aversion following a disappointing China PMI survey has added further pressure on the Canadian currency. The spike higher also breached both the 20- and 50-day moving averages. The technical picture looks less clean now. Initial resistance is at 1.1090-1.1134, which encompasses a series of daily highs that were seen during the first two weeks of February. We look to see if the pair can hold above 1.1000-1.1030 this week.

    Paste link in email or IM