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By XE Market Analysis February 20, 2018 3:26 am
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    XE Market Analysis: Europe - Feb 20, 2018

    The dollar continued to hold firm, extending the same theme for a second day. This came with 2-year U.S. Treasury yields rising to a near 10-year high in Asia today, and with stock market sentiment having soured somewhat following a week-long rebound. The USD index (DXY) posted a four-session high of 89.44, extending the rebound from Friday's 37-monnth low to 1.4%. EUR-USD remained heavy after logging four-session low at 1.2369 yesterday. USD-JPY lifted for a third straight session, this time logging a four-session high of 106.95, extending the rebound from the 15-month low seen last Thursday at 105.54. EUR-JPY and other yen crosses are also firmer, though by a lesser magnitude than USD-JPY given the broader bid in the dollar. The yen's past inverse correlation with stock market direction has remained absent. The dollar also traded firmer versus the likes of the baht, Singapore dollar and rand, along with most other newly developed and developing-world currencies. One exception was the Australian dollar ,which outperformed today, posting a 0.4% gain versus the yen, and a 0.2% rise against the U.S. buck.

    [EUR, USD]
    EUR-USD extended lower for a third consecutive session, this time logging a four-session low of 1.2352, extending the correction from the 38-month high seen on Friday at 1.2556. The pullback follows a six consecutive session run higher, and comes amid holiday-thinned trading but correlating with 2-year U.S. Treasury yields logging new 10-year highs today, which has been supportive of the dollar. We expect more of the same. EUR-USD has support at 1.2355-58, and resistance at 1.2465.

    [USD, JPY]
    USD-JPY lifted for a third straight session, this time logging a four-session high of 106.95, extending the rebound from the 15-month low seen last Thursday at 105.54. EUR-JPY and other yen crosses are also firmer, though by a lesser magnitude than USD-JPY, as a broader bid in the dollar has also been at play. The yen's past inverse correlation with stock market direction remains absent, with equity markets in Asia turning lower today, following the souring in sentiment that was seen during the PM session on European bourses yesterday. Japanese data today included the final release of January machinery tool orders, which was confirmed at +48.8% m/m -- a notoriously volatile data series month-to-month. Former BoJ member Kiuchi said that the central bank will gradually move away from crisis-era stimulus, which doesn't exactly tell us anything we don't already know. Economy minister Aso said that Japan has "more or less" escaped from economic depression.

    [GBP, USD]
    Sterling has started the new week on a soft footing, losing ground to both the dollar and euro, while holding broadly steady versus the Japanese currency. Cable edged out a four-session low at 1.3938. Support at 1.3950-52. The UK data calendar is relatively busy this week, highlighted by the February CBI surveys on industrial trends and the retail sales (today and Thursday, respectively), labour data coving December and January (Wednesday), and the second estimate of Q4 GDP (Thursday). Brexit negotiations, now at the sharp end, are ongoing, and will continue to be a font of potential volatility for sterling.

    [USD, CHF]
    EUR-CHF has been in consolidation mode in the mid 1.1500s over the last week after breaking lower in the week before, when a four-month low at 1.1446 was seen. The revival in risk appetite has helped prop up the cross.

    [USD, CAD]
    USD-CAD has lifted out of 10-day lows that were seen on Friday in the mid 1.24s. The pair has settled about a big figure higher, around 1.2550. We expect the pair to maintain a consolidation over the near term, with directional signals limited at present and with holidays in North America today reducing trading impetus.

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