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By XE Market Analysis January 23, 2018 3:15 am
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    XE Market Analysis: Europe - Jan 23, 2018

    The dollar gained on the Senate vote that ended the three-day government shutdown in the U.S. Gains have been moderate. The USD index (DXY) lifted out of a three-day low at 90.29 to 90.53, while EUR-USD tumbled by about 30 pips in making a low at 1.2238, subsequently settling around 1.2250, a level that the pair has been oscillating around for a week now. USD-JPY lifted to a 111.17 peak from levels near 110.50. The BoJ left policy unchanged at its meeting today, as had been widely anticipated, while BoJ's Kuroda sounded dovish at his post-meeting press conference, saying that the central bank will remain strongly committed to monetary easing, including QQE, until the 2% inflation target has been reached, which remains "far" from the case. Stock markets rallied on the U.S. news, which sent the MSCI Asia-Pacific index to fresh record highs.

    [EUR, USD]
    EUR-USD tumbled by about 30 pips in making a low at 1.2238, subsequently settling around 1.2250, a level that the pair has been oscillating around for a week now. The dip was driven by dollar gains on news that the U.S. Senate ended the three-day government shutdown in the U.S. EUR-USD has support at 1.2182-84, while last Tuesday's 37-month high is at 1.2323 remains in the scopes.

    [USD, JPY]
    USD-JPY lifted to a 111.17 peak from levels near 110.50. The BoJ left policy unchanged at its meeting today, as had been widely anticipated, while BoJ's Kuroda sounded dovish at his post-meeting press conference, saying that the central bank will remain strongly committed to monetary easing, including QQE, until the 2% inflation target has been reached, which remains "far" from the case. Stock markets rallied on the U.S. news, which sent the MSCI Asia-Pacific index to fresh record highs. We anticipate more gains in USD-JPY. Support is at 110.60, and resistance is at 111.48-50.

    [GBP, USD]
    Cable logged a new post-Brexit vote high of 1.4003 before settling in the mid 1.39s after the dollar picked up on the U.S. Senate's vote on the stopgap funding bill, which ends three days of government shutdown. Cable is starting to look ripe for a correction. The 14-day relative strength momentum indicator is flashing bearish divergence, with the indicator turning lower despite new highs in in spot prices over the last week. Mean reversion would bring the 20-day moving average, presently at 1.3695, into play.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.17s, below the 37-month high that was seen last 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 last week met expectations, but 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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