Home > XE Currency Blog > XE Market Analysis: Europe - Jan 24, 2018

AD

XE Currency Blog

Topics5074 Posts5119
By XE Market Analysis January 24, 2018 3:17 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3421
    XE Market Analysis: Europe - Jan 24, 2018

    The dollar has come under fresh pressure. The narrow trade-weighted USD index (DXY) traded at fresh three-year lows, logging a nadir at 89.83 and bringing cumulative loss on the year so far to 13%. EUR-USD logged a 37-month high of 1.2335, while USD-JPY traded below 110.00 for the first time since last September, posting a low at 109.80. Cable forayed further into post-Brexit vote high territory, seeing a peak at 1.4049. NZD-USD posted a new trend high, while AUD-USD came within a whisker of doing so. In the U.S, Jerome Powell was confirmed by a Senate vote as the new Fed chairman, from February 3, and, being a policy moderate by reputation, is expected to maintain Yellen's gradualist approach to tightening. Japanese data today included a strong export figure in December trade data and a four-year high in the preliminary manufacturing PMI survey, of 54.4 -- adding to the global growth narrative, although the stock market rally has sputtered somewhat in Asia. We advise trend following with regard to the dollar.

    [EUR, USD]
    EUR-USD logged a 37-month high of 1.2335 on the back of a fresh downward led in the dollar. In the U.S, Jerome Powell was confirmed by a Senate vote as the new Fed chairman, from February 3, and, being a policy moderate by reputation, is expected to maintain Yellen's gradualist approach to tightening. The ECB's meeting tomorrow, meanwhile, is in sharp focus for market participants looking for further confirmation that the central bank is on course for QE tapering. The shifting scope of ECB policy and the associated economic recovery have been key factors in underpinning EUR-USD, which is now in its fifth consecutive quarter of gains -- the pair's best performance since 2007-08. The losses can be view as a correction of the marked underperfrmance the pairing saw over the 2014 to 2015 period. EUR-USD has near-term support at 1.2262-64, and resistance at 1.2385.

    [USD, JPY]
    USD-JPY tumbled below 110.00 and clocked a four-month low at 109.80. The move was driven by broader declines in the dollar, which saw the USD index (DXY) trade at three-year lows. Yesterday's closing level at 110.31 was below recent daily lows, marking a bearish signal. Former support at 110.58-60 now reverts as resistance. Japanese data today was on the solid side of expectations, including a strong export figure in December trade data and a four-year high in the preliminary manufacturing PMI survey, of 54.4.

    [GBP, USD]
    Cable has logged a new post-Brexit vote high for a third consecutive day, this time at 1.4049. The pound is softer versus the euro and yen today, though had been performing well against these currencies in recent sessions, trading at 19-month highs in the case against the Japanese currency. UK labour data covering the November to December period is released today, where we expected unemployment to remain unchanged at its multi-decade low of 4.3%, with average household incomes expected to rise 2.5% y/y in the three months to November (medians same). At or near-expected data won't likely have a big impact on the pound. On the Brexit front, focus will remain on talks to agree on a transitory period, whereby the UK remains in the single market and customs union for a period of time, most likely two years, after the legal exit from the EU on March 29th 2019. Cable has trend support at 1.3946-47, and resistance at 1.4096-97.

    [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.

    Paste link in email or IM