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By XE Market Analysis March 6, 2014 3:17 am
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    XE Market Analysis: Europe - Mar 06, 2014

    The JPY weakened as stock markets rallied, the AUD rose following a robust set of Australian data, while the euro and sterling were steady ahead of today's ECB and BoE meetings. USD-JPY rose to 102.77, breaching above its 50-day moving average and coming within five pips of the Fe-21 peak. EUR-JPY also logged a two-week high of 141.18. The stock rebound guided the yen lower, which in turn fuelled further gains in the domestic equity market, helping to drive the Nikkei to an outperforming 1.6% gain as the MSCI Asia Pacific logged a 0.8%. AUD-USD popped above 0.9000 for the first time since Feb-26. This followed a 1.2% rise in Australian retail sales (versus the median forecast of 0.4%) and after the January trade balance showing a A$ 1433 mln surplus (against the median for A$ 100 mln).

    [EUR, USD]
    EUR-USD has consolidated in the low 1.37s after making a new low for the week at 1.3707 on Wednesday as the USD was bid on the back of the 10 bp surge the U.S. Treasury yield saw on Tuesday. The drop in EUR-USD fits our view as we have been thinking the euro's rally last week following the inflation data was an over-reaction as the 0.8% HICP outcome is hardly going to change the ECB outlook, and speculation of the central bank making further monetary easing will likely remain. We also see the Fed remaining on its tapering course. The bigger picture technical view is bearish following multiple rejections from 1.38-plus levels over the October to January period.

    [USD, JPY]
    USD-JPY rose to 102.77, breaching above its 50-day moving average and coming within five pips of the Fe-21 peak. EUR-JPY also logged a two-week high to 141.18. An ongoing stock market rally in Asia guided the yen lower, which in turn fuelled further gains in the domestic equity market, helping to drive the Nikkei to an outperforming 1.6% gain as the MSCI Asia Pacific logged a 0.8% advance. Bigger picture, there remains muted overall directional impetus in USD-JPY. BoJ policy would favour continued yen weakness, but the threat of China slowdown (and lingering geopolitical risk), with the associated negative consequences on global stock markets, is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83. Support is at 102.00, and 100.96-101.00, the former of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable has flipped back above 1.6700 on the coattails of a rebound in EUR-USD. EUR-GBP also made several attempts lower. A key support zone is in EUR-GBP given by 0.8157-0.8200, a region that has marked a series of daily lows since mid-January. There seems to be a bullish view on sterling in market commentaries, and in particular a bearish one for EUR-GBP given the risk of further ECB easing measures. The U.K. February PMI surveys showed continued solid expansion while the composite PMI was notable for showing the fastest rate of jobs growth since the PMI data series started in January 1998. This will be a focus of the BoE as at some point the improving employment market will feed through to higher pay awards, and therefore raise the scope for domestically generated inflation risk, though there has been little sign of this yet.

    [USD, CHF]
    EUR-CHF nudged out a new rebound high of 1.2201. The new high reflects a continued unwind of risk-off positioning as markets adjust to the abatement in geo-political tensions over the Ukraine crisis. There is now some distance from the fresh cycle low of 1.2104 that was seen on Monday, which is the lowest level seen since June last year. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. SNB-speak this month reaffirmed its strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign).

    [USD, CAD]
    USD-CAD looks to be forming a potential double top formation, which is a classic reversal pattern. The pair's capping out just shy of 1.1200 on Feb-21 left the late January major trend peak at 1.1224 unchallenged. This price action has been accompanied by a drop in upside momentum, and together point to a possible end of the bullish phase that was seen between October and January, in turn implying potential for a sustained retracement or a period of stasis. Support comes in at 1.1020-25.

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