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By XE Market Analysis February 27, 2014 3:40 am
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    XE Market Analysis: Europe - Feb 27, 2014

    The AUD came under pressure following Q4 capital expenditure data that showed a 5.2% decline, worse than the median forecast for -1.3% and down from +3.6% in the previous quarter. The data prompted downward revisions to Australian Q4 GDP forecasts. AUD-USD dropped to a 17-day low of 0.8917, and remained under 0.8950 thereafter. The other main currencies were steady, while the CNY was guided by the PBoC to another low for the third consecutive day. EUR-USD posted a 1.3683-1.3695 range, consolidated yesterday's drop under 1.3700. USD-JPY saw little more than a 20 pip range, centred on 102.35. Cable was also steady, around 1.6670.

    [EUR, USD]
    EUR-USD posted a 1.3683-1.3695 range, consolidating yesterday's drop under 1.3700. The decline was driven by general dollar gains following above-forecast U.S. housing data. We have been anticipating further EUR-USD weakness. Pressure on the ECB to take further monetary action into its March policy meeting has been growing. Eurozone PMI data that showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly, coming amid a backdrop of disinflation. Technically, the EUR-USD picture has been looking bearish. A two-week run higher to last week's peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period. Over this period there has also been a drop in upside momentum following a six-month rally phase. We target 1.3600 initially.

    [USD, JPY]
    USD-JPY has seen little more than a 20 pip range during the Asia session today, centred on 102.35. There is little overall directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown and its negative consequences on global stock markets is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83, ahead of 103.00-103.10, which encompasses the 50-day moving average. Support is at 102.00 and 101.66, ahead of major support at 100.00-100.71, the latter of which is the 200-day moving average.

    [GBP, USD]
    Sterling has been mixed, firming versus the EUR while trading softer against the USD. On the Cable chart, price action has turned flat, around 1.6650 after reaching a major trend peak of 1.6822 on Feb-17. We're not too bullish as we see the Fed as remaining on its tapering course, while the BoE has expressed concern about the level of sterling, which seems to have been indirectly referenced by a bout of dovish BoE-speak over the last day. Support is marked at 1.6622 (Wednesday's low) and 1.6600. Resistance is pegged at 1.6700. Selling above the latter is favoured.

    [USD, CHF]
    The recent 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 capped out just shy of 1.1200 on Friday after a perkier than anticipated outcome in Canadian CPI data, which undermined BoC easing expectations. On balance, the risks remain to the upside as the growing signs of China slowing may weigh on the commodity currency bloc. The Jan-31 major-trend peak at 1.1224 is a key level now, while good selling interest is likely into 1.1200 too. Support comes in at 1.1100, ahead of 1.1035.

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