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By XE Market Analysis January 8, 2019 3:34 am
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    XE Market Analysis: Europe - Jan 08, 2019

    The Dollar has traded firmer, recouping some of the ground lost yesterday, with market participants eyeing the upcoming release of the latest JOLTS and consumer credit reports later today, both of which are likely affirm the U.S. labour market as being in rude health. The USD index (DXY) recovered more than half of yesterday's losses in posting an intraday high of 95.96, while EUR-USD concurrently ebbed to a 1.1443 low. USD-JPY posted a six-day high at 109.08. Yen crosses have also remained buoyant amid a backstop of re-established risk appetite in global markets. Cable printed a nine-day peak at 1.2798. USD-CAD broke rank with other Dollar pairings, and is now in its fifth consecutive day of descent, posting a one-month low at 1.3267. Recent strong gains in oil prices have supported the Canadian currency. Markets are wanting specifics from the ongoing U.S.-China trade talks and a break in the partial government shutdown, the consequences of which are becoming more evident as time ticks on. Regarding trade, U.S. Commerce Secretary said yesterday that a deal can be reached that "we can live with."

    [EUR, USD]
    EUR-USD has ebbed to a 1.1443 low, correcting from the 1.1484 peak seen yesterday. The decline has been driven by a firmer dollar, with market participants eyeing the upcoming release of the latest JOLTS and consumer credit reports later today, both of which are likely affirm the U.S. labour market as being in rude health. We have shifted to a neutral view of the Dollar after being bullish for much of 2018, based on the view that U.S. monetary policy had ceased to be a support, with Fed fund futures having now priced out further tightening while pricing in a rate cute at the 18-month horizon. On the Euro side of the coin there are increasing signs of flagging economic growth momentum. We see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a more neutral Fed policy stance. Support comes in at 1.1404-05.

    [USD, JPY]
    USD-JPY has posted a six-day high at 109.00. Yen crosses have also remained buoyant amid a backstop of re-established risk appetite in global markets, in turn feeding an outperforming bid in Japanese equity markets, while the Dollar has concurrently firmed up a tad against most currencies after descending yesterday. Markets look a little less committed presently, wanting specifics from the ongoing U.S.-China trade talks and a break in the partial government shutdown, the consequences of which are becoming more evident as time ticks. Regarding the trade issue, U.S. Commerce Secretary said yesterday that a deal can be reached that "we can live with." Assuming we see concrete progress, USD-JPY should retain a upside bias. The pair has support at 108.63-65, and resistance at 109.00.

    [GBP, USD]
    Cable has ebbed back to the mid 1.2700s after printing a nine-day peak at 1.2798. The high extended the recovery from the 21-month low that was printed at 1.2455 last week. UK markets last week largely ignored stronger than expected headline readings in both December UK manufacturing and services PMI headlines. The former showed that Brexit contingency-related activity had buoyed activity in the sector, with the underlying trend remaining demonstrably weak, while the details of the services report were mostly discouraging, with new work increasing only slightly, job creation at its weakest since July 2016 and confidence for the year ahead falling to its second-weakest reading since March 2009, the blame for which was pinned firmly on Brexit uncertainty. The UK economy is likely to remain in a funk, at risk of seeing growth turn negative this quarter depending how the European and global economies hold up, and depending how Brexit unfolds. This should leave the Pound with an overall flat-to-heavy bias. Parliament will vote on the deal on January 15, next Tuesday, according to government sources cited by the BBC. It's looking highly probable that the Brexit deal will be voted down. Of all the possible scenarios at point that next Tuesday's vote rejects May's deal, out best guess is that a new EU referendum will be the path of least resistance. We anticipate that the Pound will remain a sell-into-gains trade for now. Cable has support at 1.2709-10, and resistance at 1.2800.

    [USD, CHF]
    EUR-CHF has ebbed to the lower 1.1200s. The cross had last week punched out a four-month low at 1.1184, which was seen as the Swiss franc picked up safe haven demand amid a bout of turmoil in global markets. The SNB remained firmly on hold at its quarterly policy meeting last month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD broke rank with other Dollar pairings, and is now in its fifth consecutive day of descent, posting a one-month low at 1.3267. Recent strong gains in oil prices have supported the Canadian currency. USD-CAD's early December low at 1.3160 provides a downside waypoint.

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