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By XE Market Analysis February 22, 2017 3:33 am
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    XE Market Analysis: Europe - Feb 22, 2017

    The dollar has been trading so far today, advancing against the euro into the London open while showing a more net indifferent profile versus other currencies. The euro has come under fresh pressure. EUR-USD has breached last Wednesday's low at 1.0521 and logged a six-week low at 1.0519. EUR--JPY is also lower, trading at 12-day lows, and EUR-GBP has forayed into two-month lows. Concerns about Frexit are dominating over what has been a continued run of forecast-beating data out of the Eurozone through to yesterday's flash February PMI surveys. More of this theme seems likely as currency reserve managers, corporations and investors hedge for the worst. USD-JPY has lifted off its 113.33 low, recouping to around 113.50, amid a bullish session in Asian stock markets, which followed a record-high-producing rally on Wall Street on Tuesday. The pair traded as low as 112.62 last Friday, so the yen remains at lower on the week, although it has gained versus the beleaguered euro. USD-JPY logged a five-session high at 113.77 yesterday. Cable has ebbed under 1.2500 after failing to sustain a number of rises above here over the last day. AUD-USD has eked out three-session highs just shy of 0.7700, with the Aussie benefitting from the risk-on backdrop..

    [EUR, USD]
    The euro has come under fresh pressure. EUR-USD has breached last Wednesday's low at 1.0521 and logged a six-week low at 1.0519. EUR-JPY is also lower, trading at 12-day lows, and EUR-GBP has forayed into two-month lows. Concerns about Frexit are dominating over what has been a continued run of forecast-beating data out of the Eurozone through to yesterday's flash February PMI surveys. More of this theme seems likely as currency reserve managers, corporations and investors hedge for the worst. EUR-USD trend resistance is at 1.0568-70, and the 50-day moving average is at 1.0630. Trend support is at 1.0486.

    [USD, JPY]
    USD-JPY has lifted off its 113.33 low, recouping above 113.50, amid a bullish session in Asian stock markets, which followed a record-high-producing rally on Wall Street on Tuesday. The pair traded as low as 112.62 on Friday last week, the yen remains at net low levels on the week. A five-session high was logged at 113.77 yesterday. Support comes in at 113.00-14, which encompasses the Monday, trend support and the 20-day moving average (presently at 113.14. Initial resistance is at 113.80, then 114.00. The 50-day moving average is at 114.44. We continue to favour the upside given the contrasting outlooks for Fed versus BoJ policy.

    [GBP, USD]
    Sterling has been trading mixed this week, losing ground to the dollar while gaining on the euro and yen. BoE governor Carney said yesterday that monetary policymakers are keeping a close eye out for second round effects, that if inflation "..starts to influence wage behaviour and other price behaviour" causing "domestically generated consequences," this would move the BoE "close" to its limit on above target inflation. CPI was 1.8% y/y in January data, and the central bank is expecting it to run above its official 2.0% target before capping out at 2.8% in the first half of 2018, though communications (MPC meeting minutes and Inflation Reports) have been making clear that there will be a limit to how much above-target inflation can be tolerated. The BoE adopted a neutral policy stance last November, which has since remained in place. Carney's remarks didn't move sterling, with recent weakness in wage growth, retail sales, consumer credit and house prices, suggests that the risks are skewed against second round inflationary effects. We favour Cable's downside given risks associated with Brexit negotiations and the Fed's course to further tightening.

    [USD, CHF]
    EUR-CHF has been pressing on eight-month lows at 1.0632. The weakness of the cross stems from rising political risks in France into the April Presidential election. The Swiss franc was little-affected by a volley of SNB-speak earlier in the month, with president Jordan saying that negative interest rates are "indispensable" in capping an overvalued currency, while and his colleague Maechler argued that there would be "heavy consequences" of an even stronger franc for the Swiss economy and pension funds. The franc's strength against the euro, which is a good proxy of the broader trade-weighted value of the Swiss currency, evidently remains an ongoing concern for Swiss policymakers. At least the franc is one currency unlikely to attract a Trump accusation of being undervalued.

    [USD, CAD]
    USD-CAD logged a two-week high at 1.3165 yesterday, breaking out of a recent downtrend that had left a low at 1.3009 last Thursday. Key support remains at 1.3009-14, ahead of 1.3000. On the upside, resistance is marked by the 200-day moving average is at 1.3186. With OPEC struggling to induce upside traction in oil prices, we have been tentatively recommending buying dips on the Fed versus BoC view and Trump's desire to get a better deal for the U.S. out of a revised NAFTA agreement.

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