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By XE Market Analysis January 21, 2019 3:52 am
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    XE Market Analysis: Europe - Jan 21, 2019

    The Dollar majors have been trading with little directional bias so far today. EUR-USD has settled in the upper 1.1300s, up from Friday's 17-day low at 1.1353, and near the 1.1400 level, which roughly marks the midway point of a broadly sideways range that's been unfolding for three months now. Cable and AUD-USD managed to edge out two-session lows, though the magnitude of movement has been limited. USD-JPY traded moderately softer, though has held within Friday's range so far. An intraday low was printed at 109.47. EUR-JPY saw a similar downward drift, but also remained within its range seen on Friday, while AUD-JPY edged out a two-session low at 78.28. Stock markets in Asia lifted, although gains have mostly been moderate in magnitude, while S&P 500 futures have declined by 0.3%, correcting after the cash version of the index closed out on Wall Street on Friday with a 1.3% gain. China Q4 GDP data showed growth easing to 6.4% y/y, meeting expectations in declining from 6.5% y/y in Q3, while 2018 growth ebbed to 6.6%, the slowest annual growth since 1990. Fitch also reported that defaults on Chinese corporate bonds rose to a record high in 2018. Offsetting this were data showing China's industrial production beating expectations with 5.7% growth, while retail sales rose 8.2% y/y. Another offset are expectations for the U.S. and China to be more committed to finding resolution to their trade dispute as the consequences becoming increasingly evident on both sides of the Pacific.

    [EUR, USD]
    EUR-USD has settled in the upper 1.1300s, up from Friday's 17-day low at 1.1353, and near the 1.1400 level, which roughly marks the midway point of a broadly sideways range that's been unfolding for three months now. We expect a flat-to-downward bias to prevail given the backdrop Eurozone-slowing narrative. EUR-USD resistance comes in at 1.1407-10.

    [USD, JPY]
    USD-JPY has traded moderately softer, though has held within Friday's range so far. An intraday low was printed at 109.47. EUR-JPY saw a similar downward drift, but also remained within its range seen on Friday, while AUD-JPY edged out a two-session low at 78.28. Stock markets in Asia lifted, although gains have mostly been moderate in magnitude, while S&P 500 futures have declined by 0.3%, correcting after the cash version of the index closed out on Wall Street on Friday with a 1.3% gain. China Q4 GDP data showed growth easing to 6.4% y/y, meeting expectations in declining from 6.5% y/y in Q3, while 2018 growth ebbed to 6.6%, the slowest annual growth since 1990. Fitch also reported that defaults on Chinese corporate bonds rose to a record high in 2018. Offsetting this were data showing China's industrial production beating expectations with 5.7% growth, while retail sales rose 8.2% y/y. Another offset are expectations for the U.S. and China to be more committed to finding resolution to their trade dispute as the consequences becoming increasingly evident on both sides of the Pacific. We anticipate that USD-JPY will trade without overall direction for now. Support comes in at 109.06-08, and resistance at 109.92-94.

    [GBP, USD]
    Cable has drifted moderately lower, to the 1.2850 area, down from last week's two-month high at 1.3001. The Pound lifted last week in the wake the UK parliament's rejection of the government's Brexit deal. Cross party talks are now aiming to find a Brexit plan capable of winning sufficient parliamentary support, the best chance of which would be a "soft Brexit" Norway-style option. This, along with the raised odds for the March-29 legislated Brexit date being delayed, helped buoy sterling over the last week, though the UK's future remains clouded by uncertainty. We still see that a new referendum on EU membership will ultimately be the way forward, though where the UK will be after that -- whether remaining in or out of the EU, and under what terms in the case of the latter -- remains uncertain. We still think a no-deal Brexit scenario will be avoided, as we think the prime minister and the vast majority in the UK's parliament will ensure this doesn't happen. Sterling, which is trading at a 13%-15% discount in trade-weighted terms relative to levels prevailing ahead of the EU referendum in June 2016, would have potential to rally strongly at the point it becomes clear a no-deal Brexit will be avoided.

    [USD, CHF]
    EUR-CHF has settled above 1.1300. USD-CHF has also been trading in three-week high territory. Recent underperformance of the Swiss franc has been accompanied by talk/suspicions of SNB intervention. There had also been rumoured SNB intervention a couple of weeks ago, which had propelled EUR-CHF to a then three-week high at 1.1335 (subsequently surpassed the next day, when a 1.1340 high was clocked before the cross retreated to sub-1.1300 levels). SNB Chairman Jordan warned last Wednesday that it was "too early for a change" in the central bank's ultra-accommodative monetary policy, saying, with regard to the global outlook, that "the situation remains fragile and uncertainty has increased" while complaining that the franc remained "highly valued." The cross had earlier in the month punched out a four-month low at 1.1184, which was seen as the Swiss currency 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 intervention, or threat thereof, to limit appreciation in the currency.

    [USD, CAD]
    USD-CAD has settled back in the upper 1.3200s after printing a 10-day high last Thursday at 1.3319. The high extended a rebound from the six-day low printed on Tuesday at 1.3226, which was seen as the Canadian Dollar and its Dollar bloc brethren found support on news that China is implementing tax cuts and other measures to stimulate its economy. Since then there has been signs that the Trump administration is more eager to strike a deal with China on trade, which has returned support to the Canadian Dollar. USD-CAD has support at 1.3228-50.

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