Home > XE Currency Blog > XE Market Analysis: Europe - Jul 10, 2014

AD

XE Currency Blog

Topics1103 Posts1123
By XE Market Analysis July 10, 2014 3:02 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 854
    XE Market Analysis: Europe - Jul 10, 2014

    USD majors were mostly steady, while AUD and NZD were movers in pre-Europe trade in Asia. EUR-USD managed to eke out a fresh one-week high of 1.3649. The FOMC minutes didn't show any ratcheting up in hawkish language, not giving any indication of a policy change anytime soon with policymakers seeing more slack in the jobs market than is reflected by the unemployment rate. This pushed the dollar down during the New York PM session, and the firmer tone of EUR-USD was concomitant with a continued narrowing in the U.S. T-note over Bund yield differential, which has drifted below 131 bp from levels above 138 bp earlier in the week. USD-JPY, meanwhile, drifted to a 101.49 low before steadying. Japanese data, which included a record dive in machinery orders, didn't cast much impact. NZD-USD logged a new trend peak of 0.8836 following NZ manufacturing PMI data, which rose to 53.3 in June from 52.6. AUD-USD was bid to 0.9449 ahead of the Australian employment only to dive under 0.9400. Headline employment rose 15.9k, but full time employment was down 3.8k and the jobless rose to 6.0% from 5.9% in May (revised up from 5.8%). China trade data also missed expectations, which further weighed on the Aussie.

    [EUR, USD]
    EUR-USD managed to eke out a fresh one-week high of 1.3650. The FOMC minutes didn't show any ratcheting up in hawkish language, not giving any indication of a policy change anytime soon with policymakers seeing more slack in the jobs market than is reflected by the unemployment rate. This pushed the dollar down during the New York PM session, and the firmer tone of EUR-USD was concomitant with a continued narrowing in the U.S. T-note over Bund yield differential, which has drifted below 131 bp from levels above 138 bp earlier in the week. We have revised our bearish outlook, at least over the nearer term, and expect EUR-USD's bias to be to the upside. A breach of 1.3640-50, which is a recent pivot and congestion zone, and the 20-day moving average at 1.3658 and Jul-3 high at 1.3664, would bring 1.3700 into scope, which marks the Jun-30 high. This level is reportedly a significant option barrier level and we would expect good selling interest into this level.

    [USD, JPY]
    USD-JPY drifted to a 101.49 low in the wake of the FOMC minutes before steadying. Japanese data, which included a record dive in machinery orders, didn't cast much impact. USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    Cable found demand in Asia in the wake of the dollar-negative FOMC minutes, making a high of 1.7168 before drifting lower. We think sterling is looking poised for a deeper correction with overall upside momentum having waned following the move to an eight-month peak at 1.7180 last week. BNP's positioning monitor showed this week that the market had built up an extreme net long GBP exposure, suggesting scope for correction. A breach of 1.7085 would bring supports at 1.7052 (20-day moving average) and 1.7000 into scope. Bigger picture, we remain bullish. We don't think the sub-expectations May production data will change the picture too much as we expect output to pick up again in June, in-line with the survey evidence. We continue to target 1.7330 in Cable, which is a big-picture retracement level, being the 50% mark of the 2007 to 2009 decline. Our EUR-GBP target is provided by the major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF steadier around 1.2150-60 after recovering from last week's 1.2133 three-and-a-half month low, though the situations in Iraq and Ukraine are continuing to underpin the Swiss currency's safe-haven premium. Technically, the break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, so far remaining unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has continued to consolidate after logging an eight-day high just shy of 1.0700 on Tuesday. The move reflected general CAD weakness after the latest BoC's business outlook survey failed to show any material improvement, which saw Canadian yields dip and arrested the recent bear trend, which has been in place since USD-CAD breached below the 200-day moving average at 1.0783 on Jun-20. Resistance is pegged at 1.6996 (Jun-27 high) and 1.0700. Recent price congestion around 1.0620-40 is support.

    Paste link in email or IM