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By XE Market Analysis January 19, 2018 3:08 am
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    XE Market Analysis: Europe - Jan 19, 2018

    The dollar has traded softer on U.S. political concerns, though has remained above recent trend lows versus the yen, euro and most other currencies. The narrow trade-weighted USD index (DXY) is down 0.2%, making a low at 90.33 and swinging the 37-month low of Wednesday at 90.14 back into scope. The House of Reps passed the stopgap funding bill yesterday, and the vote now goes to the Senate, which has delayed its vote until later today and where there remains significant opposition to the bill. Republicans have been making amendments to the bill in an attempt to entice Democrat votes, but Democrats signalled that they have enough opposition to stop the bill, which they argue does not give them sufficient concessions on immigration, government spending and other issues. According to the Washington Post, 39 Democrat and at least two GOP Senate members are known to be in opposition, leaving the bill short of the 60 votes needed to advance. This will be the dominant focus for markets today for market participants. Should the vote fail, government agencies will start shutting down from tomorrow -- a scenario that would likely spark heavy dollar selling.

    [EUR, USD]
    EUR-USD lifted back above 1.2250 from sub-1.2100 levels amid a general decline in the dollar amid concerns about whether the U.S. Senate will pass the stopgap funding bill to avoid a government shutdown, which would start as soon as tomorrow if the vote fails to pass. EUR-JPY and other euro crosses have been comparatively steady for the most part, while EUR-CHF has tumbled for a third consecutive session, reflecting an erosion in broad-based support for the common currency after some ECB policymakers this week expressed concern about the pace of recent gains in the common currency. EUR-USD has support at 1.2182-84. Tuesday's 37-month high is at 1.2323, which would almost certainly be breached in the event that the Senate reflects the funding bill today.

    [USD, JPY]
    USD-JPY has traded moderately softer on the back of a generally softer tone in the dollar. News that the Senate vote on the temporary funding bill to avoid a government shutdown has been delayed until later today weighed on the greenback. The House passed it yesterday, so its down to the upper house now, where passage is by no means guaranteed. USD-JPY logged an intraday low of 110.78, though has so far left yesterday's low at 110.50 unchallenged. EUR-JPY and other yen crosses have traded in narrow ranges for the most part. AUD-JPY lifted to a 12-day high at 0.8902, coming with 7 pips of the peak of three-month highs. A new record high in the MSCI Asia-Pacific equity index, with markets still digesting yesterday's Chinese GDP data, helped maintain a bid for the Australian dollar. Focus today will be on the Senate vote of the stop-gap funding bill as any failure would see the government shutdown from tomorrow.

    [GBP, USD]
    .Cable has remained underpinned, continuing to track EUR-USD higher amid a generally soft dollar environment. The pair clocked an intraday high of 1.3924 earlier, drawing in Wednesday's post-Brexit vote peak at 1.3943. The pound has outperformed over the last week, boosted by remarks BoE MPC member Sauders midweek, when he warned that pay growth will accelerate in the UK during 2018 and that unemployment may drop to multi-decade lows under 4.0%. Next key data of the UK comes with Decmber retail sales, today, where we expect a decline of 0.8% m/m (median -0.6% m/m), which would correct some of the 1.1% m/m gain that was seen in November.

    [USD, CHF]
    EUR-CHF has declined for a third straight session, making an eight-day low of 1.1729. This extends the correction from the 37-month high that was seen on Monday at 1.1833. The pullback follows remarks from some ECB policymakers expressing concerns about the pace of recent euro gains, which could have implications for monetary policy. This has put in a pause on the broad rally the cross has been seeing since mid last year, seen concomitantly with economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015.

    [USD, CAD]
    USD-CAD has maintained a consolidation in the mid 1.24s over the last several sessions. The BoC's 25 bp rate hike this week met expectations, and was accompanied with cautious guidance. The central bank's gradual normalization reflects ongoing uncertainties, notably the NAFTA renegotiation. We expect two more 25 bp rate hikes this year, in July and October. Focus will remain on the NAFTA front, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices.

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