Home > XE Currency Blog > XE Market Analysis: Europe - Jun 27, 2014

AD

XE Currency Blog

Topics7698 Posts7743
By XE Market Analysis June 27, 2014 2:48 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5622
    XE Market Analysis: Europe - Jun 27, 2014

    The USD is softer across-the-board. EUR-USD recovered to the 1.3620-30 area as the 10-year T-note over bund yield spread narrowed below 127 bp after probing near 130 bp a couple of days ago. This recouped the losses see after yesterday's "ECB sources" report that even lower rates might be tolerated in the Eurozone, which had sent EUR-USD to a 1.3575 low. A backdrop of lower stock markets helped underpin the yen, as per the usual correlation, and USD-JPY broke below recent lows and clocked a one-month low at 101.31. The 200-day moving average at 101.71 was breached on route. Japanese data were net supportive of the yen too: Fiscal 2013 tax revenue beat government estimate, May CPI rose to 3.7% from 3.4%, retail sales rose 4.6% m/m, beating expectations for 2.9% growth, and unemployment dipped to 3.5% from 3.6%. Elsewhere, the AUD, NZD and CAD all logged fresh highs against the USD, despite softer stock markets today across the Asia-Pacific region.

    [EUR, USD]
    EUR-USD recovered to the 1.3620-30 area as the 10-year T-note over bund yield spread narrowed below 127 bp after probing near 130 bp a couple of days ago. This recouped the losses see after yesterday's "ECB sources" report that even lower rates might be tolerated in the Eurozone, which had sent EUR-USD to a 1.3575 low. We still retain a bearish EUR-USD view as there is sufficient contrast between the Fed and ECB policy stances. We mark key EUR-USD resistance at 1.3650-51 and 1.3672-77, the latter levels of which encompass the 200-day moving average and the Jun-6 peak.

    [USD, JPY]
    A backdrop of lower stock markets helped underpin the yen, as per the usual correlation, and USD-JPY broke below recent lows and clocked a one-month low at 101.31. The 200-day moving average at 101.71 was breached on route. Japanese data were net supportive of the yen too: Fiscal 2013 tax revenue beat government estimate, May CPI rose to 3.7% from 3.4%, retail sales rose 4.6% m/m, beating expectations for 2.9% growth, and unemployment dipped to 3.5% from 3.6%. We look for USD-JPY to test 101.00 near-term, though the looming month-end and geopolitical concerns may curtail directional impetus. Bigger picture, 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]
    We remain sterling bullish with the BoE having left the hawkish starting gates ahead of the Fed and ECB. Last week's major-trend peak at 1.7063 provides an initial target in Cable, while a big-picture Fibonacci retracement level at 1.7330, which is a 50% retracement level of the 2007 to 2009 decline, offers a longer-term target. Our EUR-GBP target is provided by the crosses major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF remains biased lower as the situation in Iraq and Ukraine enriches the franc's safe-haven premium. The cross on Thursday touched last week's low at 1.2152, which is a one-month low. 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, but so far have remain 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 made a fresh six-month low under 1.0700. The pair breached below the 200-day moving average at 1.0783 earlier in the week and has been trending lower since. The move reflects a broad dollar-bloc bid that was sparked by much stronger than expected PMI data out of China and Japan, which has underpinned the commodity-correlating currencies. USD-CAD had last week breached May lows at 1.0814-1.0822 in the wake of the dovish FOMC announcement. The main caveat is the still-dovish outlook for BoC policy, which should put a limit on the CAD's upside at some point.

    Paste link in email or IM