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By XE Market Analysis January 20, 2014 2:32 pm
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    XE Market Analysis: Europe - Jan 20, 2014

    The yen posted moderate gains today in pre-European Asian trade. USD-JPY dipped to a six-day low of 103.86 before recovering to the 104.10-15 area. EUR-JPY and other yen crosses saw pretty much the exact same price action. EUR-JPY logged a low of 140.32, which was the lowest traded since Dec-6, before recovering to the 104.90s. The EUR itself extended Friday's lows before rebounding somewhat. The euro has been his by a market reassessment of ECB policy amid its battle against disinflation (and to decouple interest rate expectations in the Eurozone from the U.S. as the Fed starts policy tapering), with member Coere signalling last Friday said that negative deposit rate remains an option. EUR-USD posted an eight-week low of 1.3507 before recovering toward 1.3550. AUD-USD logged a fresh two-and-a-half year low of 0.8756. Net weak data out of China and Japan supports the bearish argument for the Aussie.

    [EUR, USD]
    The euro extended Friday's lows before rebounding somewhat. The euro has been his by a market reassessment of ECB policy amid its battle against disinflation (and to decouple interest rate expectations in the Eurozone from the U.S. as the Fed starts policy tapering), with member Coere signalling last Friday said that negative deposit rate remains an option. EUR-USD posted an eight-week low of 1.3507 before recovering toward 1.3550. Meanwhile, U.S. data over the last week have largely made up for the payrolls disappointment of last week, which has returned the dollar to a generally better bid. In the broader view we still think the pairing is making a topping formation and would therefore be more apt to sell into strength. Resistance at 1.3580-1.3600, which encompasses both the 20- and 50-day moving averages. Initial support is at 1.3500.

    [USD, JPY]
    The yen posted moderate gains today in pre-European Asian trade. USD-JPY dipped to a six-day low of 103.86 before recovering to the 104.10-15 area. EUR-JPY and other yen crosses saw pretty much the exact same price action. EUR-JPY logged a low of 140.32, which was the lowest traded since Dec-6, before recovering to the 104.90s. The EUR itself extended Friday's lows before rebounding somewhat. The euro has been his by a market reassessment of ECB policy amid its battle against disinflation. Japan's government also, last Friday, raised its assessment of the economy in its latest monthly report, and data revealed an upward revision to wages, both of which will please policymakers as they pursue an aggressive reflationary policy. We continue to expect that USD-JPY's major-trend peak at 105.44 to fall as the BoJ's expansive monetary policy should continue to drive the yen to fresh lows during 2014. Data this month 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 the year.

    [GBP, USD]
    Sterling received a short in the arm following last Friday's release of much stronger than expected retail sales data for December. However, the overall outlook is still looking generally less bullish following CPI figures that showed inflationary pressures to be rapidly unwinding and real sector data and survey evidence that have shown that the economy hasn't been sustaining recovery momentum as well has had been thought. The data backdrop supports the BoE's ultra-easy policy stance. We still expect the pound to hold up against the likes of the yen, but to loose ground to the dollar. GBP-USD's six-month rally now looks to have capped out and we see scope for a correction to 1.6000. Initial resistance is marked at 1.6450.

    [USD, CHF]
    The CHF has seen some choppy price action in recent sessions, but overall we expect the currency to remain on a bigger-picture softer footing as a consequence of the 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 1.2320 and 1.2300.

    [USD, CAD]
    USD-CAD has broken sharply higher over the last week, partly driven by weaker Canadian data and the consequent underpinning of favourable yield differential movement. The pair broke 1.0700, 1.0800 and now 1.0900, 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 1.1000, support at 1.0920-1.0900.

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