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By XE Market Analysis January 12, 2015 3:51 am
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    XE Market Analysis: Europe - Jan 12, 2015

    The dollar traded softer for a second consecutive trading day. EUR-USD carved out a five-day high at 1.1871, subsequently ebbing back to the 1.1850 area. News that a broad majority at ECB are in favour of sovereign bond purchases, according to a report in Germany's Handelsblatt, should keep the euro a sell-on-rallies trade. USD-JPY ebbed to a six-day low at 106.09, on route breaching the 50-day moving average for the first time since last October, and coming within four peps of the Jan-6 one-month low. Tokyo markets were closed for a national holiday in Japan today. AUD-USD punched out a one-month peak of 0.8255. Russia was downgraded by Fitch to BBB- from BBB, with outlook negative.

    [EUR, USD]
    EUR-USD carved out a five-day high at 1.1871, subsequently ebbing back to the 1.1850 area. News that a broad majority at ECB are in favour of sovereign bond purchases, according to a report in Germany's Handelsblatt, should keep the euro a sell-on-rallies trade. We remain bearish as markets are expecting that the ECB will announce QE at its Jan-22 policy meeting, with the central bank's concerns about deflation outweighing the recent improvement in survey data. EUR-USD resistance is marked at 1.1871-75 and 1.1900, support at 1.1800 and 1.1780.

    [USD, JPY]
    USD-JPY ebbed to a six-day low at 118.09, on route breaching the 50-day moving average for the first time since last October, and coming within four peps of the Jan-6 one-month low. Tokyo markets were closed for a national holiday in Japan today. USD-JPY has been trending broadly sideways since making a seven-year peak at 121.85 on Dec-8. We remain bullish, however, with 'Abenomics' policies likely to maintain the dollar's yield advantage over the yen, even if Fed tightening prospects remain tentative. USD-JPY resistance is marked by former range lows at 119.96-120.09, and support is marked at 1.1800-05.

    [GBP, USD]
    Sterling remains in the grip of a bear trend that's been persisting since July last year. A test of 1.5000 looks just a matter of time, reportedly a big option level with large sell-orders below. The sharp drop in the UK December composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of 1.0%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee. Cable resistance is at 1.5193-1.5200, support at 1.5034-5.

    [USD, CHF]
    EUR-CHF has come under fresh pressure in recent days, once again amid general euro weakness. Swiss foreign currency reserves data for December last week showed reserves rose to CHF 495.1 bln (a record) from CHF 462.7 bln in November, which is a consequence of the SNB's intervention on Dec-18. The intervention was additional to the implementation of a negative deposit rate, which was cut to -0.25%, also on Dec-18. The rouble crisis and euro weakness saw EUR-CHF come under pressure in December, and on Dec-16 the cross came within six pips of SNB's the 1.2000 limit. The cross spiked to 1.2096 on Dec-18 on the intervention, along with the announcement of the negative deposit rate. This was the first time that the SNB has intervened in spot since 2012. With the ECB set to pursue QE, the SNB will have its work cut out to defend 1.2000 during the first half of 2015.

    [USD, CAD]
    USD-CAD remains broadly underpinned after making a trend high at 1.1890 last Friday. Oil prices at new five-year low below $48 are blighting Canada's terms of trade and keeping the pressure on the loonie. The August 2009 high at 1.3063 provides a big-picture target.

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