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By XE Market Analysis March 19, 2018 4:55 am
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    XE Market Analysis: Europe - Mar 19, 2018

    Both the dollar and yen have traded firmly against most other currencies in early-week trading so far. EUR-USD has ebbed to a 17-day low at 1.2258, and EUR-JPY a two-week low, of 129.61, as a consequence. The biggest movers out of the main currencies have been AUD-JPY, NZD-JPY and CAD-JPY, which are down between 0.3% and 0.4% as the London interbank takes to its collective desk. AUD-USD clocked a three-month low of 0.7688, while USD-CAD posted a nine-month peak of 1.3122, capping a run higher of six consecutive sessions in the case of the latter. Concerns about Trumpian trade wars remains at play to the detriment of the commodity-correlating dollar bloc currencies. A 4%-tumble in iron ore futures was an added selling cue for the Aussie. USD-JPY has traded heavily, with the yen outperforming the dollar. The pair ebbed back from levels above 106.00, logging a low of 105.68, which is 8 pips shy of Friday's low.

    [EUR, USD]
    EUR-USD has ebbed to a 17-day low at 1.2258, and EUR-JPY a two-week low, of 129.61, reflecting outperformance of both the dollar and yen today. Rate differentials are also at play in EUR-USD, with the Bund/T-note spread widening below -228 bp after strong production and consumer sentiment data out of the U.S. on Friday and the Bund-yield suppressing downward revision on Eurozone HICP. That's well out from -222 bp earlier last week and another step closer to -235 bp historic wides. In the bigger view, EUR-USD remains mired at midway levels of a range that's been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. A daily close below 1.2275 would suggest momentum is shifting more assuredly to the downside.

    [USD, JPY]
    USD-JPY has traded heavily, with the yen outperforming the dollar. The pair ebbed back from levels above 106.00, logging a low of 105.68, which is 8 pips shy of Friday's low. EUR-JPY clocked a two-week low, of 129.61, while AUD-JPY, NZD-JPY and CAD-JPY have seen relatively big declines amid concerns about Trumpian trade wars, which comes to the detriment of the commodity-correlating dollar bloc currencies while generating safe haven demand for the yen. USD-JPY has been trending lower over the last week, and we expect more of the same for now. Support is at 105.20.

    USD-JPY dipped back under 106.00 with the yen retaining a firming bias. EUR-JPY and other yen cross have also been trading with a heavy tone. News that U.S. special council Mueller has subpoenaed the Trump Organisation for business, some of which are related to Russia, has been a worry for investors, helping prop safe haven demand for the Japanese currency. There is also news that Trump has removed his national security advisor, H.R. McMaster. A backdrop of mixed global equity markets has been a supporting driver of the yen, with investors trying to fathom the risk of a Trumpian trade war, how extensive it might and what consequences it might have on global growth. The joint response to Russia by key NATO allies following the attempted hit on an ex Russian double agent is also in the mix. We see greater risks for USD-JPY declining to 100.00 than climbing to 110.00 on the assumption that we'll see more equity market turmoil as markets digest trade wars, and should this prove to be less vicious than feared, then the removal of crisis-era monetary stimulus by the Fed, BoJ and other key global central banks. USD-JPY has near-term support at 105.58-60.

    [GBP, USD]
    The pound has been trading mixed over the last week, losing ground to the dollar and yen while gaining versus the euro. Cable's highs from last week at 1.3992-95 mark key resistance for the pairing. There has been a lack of strong UK trading leads, with rapidly souring UK-Russian relations having cast little impact as yet, and with there have having been a dearth of UK data releases. Market focus is on tomorrow's UK inflation report for February, and the two-day EU leaders' summit, starting this Thursday, where the 27 are expected to agree a roadmap for a post-Brexit transition period. Meanwhile, sterling markets are discounting about 80% odds for a May BoE rate hike (according to Barclays). Cable has support at 1.3911-15.

    [USD, CHF]
    EUR-CHF has settled in a narrow-ranged consolidation near the 1.1700 level following the early-March break higher from sub-1.1500 levels. A seven-week high was logged in early March at 1.1741. The SNB last week announced unchanged policy following its quarterly policy review, as had been widely anticipated, while reaffirming its commitment to monetary stimulus to keep what it still considers a richly-valued currency on a back foot. EUR-CHF rallied some 10% from mid last year, has been emblematic of the euro's recovery over the last year, with the franc unwinding latent safe haven premium as existential uncertainties under the Eurozone and EU come off the boil. Even though Eurosceptic parties won about 50% of the vote in Italy's recent general election, the governing political alliance led by La Lega has indicated that Italy will remain in the EU and retain the euro.

    [USD, CAD]
    USD-CAD posted a nine-month peak of 1.3122, capping a run higher of six consecutive sessions. The Canadian dollar has been underperforming amid worries about the NAFTA negotiation and after BoC Governor Poloz said last week that the unwinding of monetary stimulus would "remain cautious." Oil prices have also been trading on the flat-to-softer side, overall. Incoming Canadian data have consistent with the BoC's slow-go approach to policy normalization. Canada's week ahead brings the final inputs to the January GDP projection, with January wholesale trade (Tuesday), seen up 0.1%, January retail sales (Friday), seen rebounding 1.0% in January after the 0.8% drop in December. February CPI data is also up (Friday), expected to grow 0.3% m/m and by 1.8% y/y. USD-CAD technically remains solidly in an uptrend, which has been in play since late January. Trend support comes in at 1.3028-30.

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