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By XE Market Analysis January 22, 2014 3:04 am
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    XE Market Analysis: Europe - Jan 22, 2014

    The most notable move since the London close yesterday has been the AUD, which spike sharply following Australian CPI that came in double market expectations at +0.8% q/q in Q4. AUD-USD surged nearly 100 pips in making 0.8873 before settling around 0.8860-70. AUD-JPY logged a one-week high. The JPY, meanwhile, some chop into and after the BoJ meeting, before settling net higher. The BoJ announced unchanged policy, as expected, leaving rates at zero with a Y60-70 tln annual increase in the monetary base, but made a show of recommitting to its expansive monetary stance while downgrading its 2014-15 growth projection, which went down well in stock markets in Asia. USD-JPY logged an intraday peak of 104.57, having recovered from the 103.97 low. Elsewhere, EUR-USD lifted to a high of 1.3580 before settling to near net unchanged levels around 1.3550-60..

    [EUR, USD]
    We continue to expect EUR-USD to trend lower, even though EUR-JPY may hold up as we anticipate general yen underperformance. The market is amid a reassessment of the 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). In contrast, the U.S. Fed may well announce a further tapering in its QE asset purchase schedule at the late January FOMC (WSJ Fedwatcher Hilsenrath argued a reduction to $65 bln a month from the current $75 bln is on the cards). EUR-USD resistance at 1.3580-1.3600, support is at 1.3500.

    [USD, JPY]
    The JPY some chop into and after the BoJ meeting, before settling net higher. The BoJ announced unchanged policy, as expected, leaving rates at zero with a Y60-70 tln annual increase in the monetary base, but made a show of recommitting to its expansive monetary stance while downgrading its 2014-15 growth projection, which went down well in stock markets in Asia. USD-JPY logged an intraday peak of 104.57, having recovered from the 103.97 low. 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, though a disappointing CBI industrial trends figure has since offset this. 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.

    [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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