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By XE Market Analysis March 7, 2014 3:19 am
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    XE Market Analysis: Europe - Mar 07, 2014

    A quiet, pre-U.S. jobs report session has been seen in Asia where narrow ranges prevailed. EUR-USD flat-lined in an ultra-tight range around 1.3860, consolidating the rally from the low 1.37s that was seen after the ECB announced its refrain from taking further monetary easing following its March meeting. USD-JPY drifted slightly higher to 103.16 in early Asia Pacific trade, stalling one pip shy of yesterday's five-week peak before ebbing to a 102.86 low and then settling around 103.00. Stocks in Asia continued higher, with the regional MSCI index showing a 0.5% gain, though China's Shanghai Composite underperformed with levels near net unchanged. Chaori became China's first ever corporate bond default, though we knew this was going to be the case since Wednesday, and Moody's put a positive spin on it, arguing that the experience will mature the market there, in line with the policymaker shift to more market-oriented policies. The CNY was slightly firmer today. AUD-USD logged a one-month peak of 0.9113 in post-London New York session, and a pop higher in Sydney following relatively un-dovish RBA-speak from Governor Stevens failed to see the Aussie advance on this with the pair settling just below 0.9100.

    [EUR, USD]
    EUR-USD flat-lined ahead of the U.S. jobs report during the Asia session in an ultra-tight range around 1.3860. This consolidated the steep rally from the low 1.37s that was seen after the ECB upped growth forecasts while announcing that it was refraining from taking further monetary easing following its March meeting. Focus now falls on the U.S. employment report for February, where analysts will have the task of looking through weather distortions for a clear picture, a consideration that may curtail the market reaction to the report. Key resistance levels are in scope now, specifically the late December high of 1.3894 and 1.3900. There were multiple rejections from 1.38-plus levels over the October to January period. Support is marked at 1.3820 and 1.3800.

    [USD, JPY]
    USD-JPY drifted slightly higher to 103.16 in early Asia Pacific trade, stalling one pip shy of yesterday's five-week peak before ebbing to a 102.86 low and then settling around 103.00. EUR-JPY also a fresh two-month high of 142.99. An ongoing stock market rebound has guided the yen lower. Bigger picture, there remains muted overall directional impetus in USD-JPY within the 100.00-105.00 range. BoJ policy would favour continued yen weakness, but the threat of China slowdown is an offsetting yen-supportive force, via the possible association of negative consequences on global stock markets given the yen's normal inverse correlation with global stock market direction. Resistance is marked at 103.45. Support is at 102.50, and 100.98-101.00, the former of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable has consolidated above 1.6700. There seems to be a bullish view on sterling in market commentaries, though bearish calls on EUR-GBP were blown out the water after the ECB refrained from announcing further measures. The U.K. February PMI surveys this week 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 drifted back under 1.2200 as various geo-political risks remain over the Ukraine situation, which is returning support to the safe haven franc. This leaves the rebound high at 1.2214. There remains 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 logged a two-week low under 1.1000 this week. Bigger picture, the pair looks to be forming a potential double top formation, which for technical analysts is a classic trend 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 these developments 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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