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By XE Market Analysis January 10, 2014 2:37 am
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    XE Market Analysis: Europe - Jan 10, 2014

    EUR-USD rebounded to levels around 1.3610-20 after making a six-week low of 1.3548 yesterday following solid U.S. data and dovish ECB press conference. EUR-JPY and EUR-GBP saw a similar price action. USD-JPY rose back toward 105.00 amid modest yen underperformance. AUD-USD posted a narrow range of 0.8875-0.8910, surviving a modest dip following sub-expectations China trade surplus of $25.64 bln (versus the median of $32.15 bln). Sterling was unmoved by a softer than expected outcome in the U.K. BRC retail sales figure for December, which came in at half the median forecast at 0.4% y/y. Overall, the pre-Europe Asia session has been pretty uneventful, and activity has been low ahead of today's U.S.. payrolls report.

    [EUR, USD]
    EUR-USD recovered the 1.36 handle after making a six-week low of 1.3548 yesterday following solid U.S. data and dovish ECB press conference. EUR-JPY and EUR-GBP saw a similar price action. Market activity has been low ahead of today's U.S.. payrolls report. We remain bigger-picture bearish on EUR-USD as we have a dollar bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed's QE tapering decision. There is also the possibility that the ECB might announce fresh stimulus in the coming months. Initial resistance is marked at 1.3620-25 ahead of 1.3668-1.3675, which encompasses both the 20- and 50-day moving averages.

    [USD, JPY]
    USD-JPY rose back toward 105.00 amid modest yen underperformance. The five-year peak of 105.44 remains within striking distance, which we expect to fall in the not too distance future. BoJ member Shirai said this week that it would be possible to aim for the 2.0% inflation target at slower pace, though this didn't stir markets as it has become evident that the objective will take longer than the central bank envisaged last April, when it embarked on this course. We expect this policy will continue to drive the yen to fresh lows during the year. Data this week showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having. The BoJ is targeting a monetary base to Y270 tln by the end of 2014.

    [GBP, USD]
    We remain sterling bullish, though the 1.6500-1.6510 zone in Cable is a strong resistance point. The case for sterling was strengthened this week by the BoE's latest Credit Conditions survey, which found lenders to be planning a "significant" increase in both mortgage and business lending in Q1. The report is good news, especially concerning business lending, which has been a missing link in the U.K. recovery so far.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9100 and EUR-CHF breached above 1.2300 for the first time in a month, up from its pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. This reflects an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2400, support at 1.2370 and 1.2350.

    [USD, CAD]
    USD-CAD has broken sharply higher this week on a bullish U.S. dollar outlook and weaker Canadian data, underpinned by favourable movement in yield differentials. The pair broke both 1.0700 and 1.0800, taking out its Dec-20 major trend peak of 1.7337 on route. The price action marks a break higher after some pretty choppy price action over the last several of weeks. Resistance can now be expected at 1.0850 and 1.0900. The previous trend peak of 1.0737 and 1.0700 now provide support.

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