Home > XE Currency Blog > XE Market Analysis: Europe - Mar 20, 2014

AD

XE Currency Blog

Topics1272 Posts1292
By XE Market Analysis March 20, 2014 4:32 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 972
    XE Market Analysis: Europe - Mar 20, 2014

    The USD has consolidated modestly lower after surging across-the-board on the FOMC, after Fed boss Yellen said there will be about a six-month period between the time when the Fed's bond buying program ends (late this year) and when the first rate hike will be seen. EUR-USD settled to around 1.3830-40, up from the post-FOMC low of 1.3809, but still well off the pre-FOMC statement levels above 1.3900. USD-JPY ebbed to the 102.20-30 area after spiking to a peak of 102.68 on the Fed. The Aussie didn't like the Fed-induced risk-off backdrop (the MSCI Asia Pacific stock index dove 1.9%) and AUD-USD dropped to a new low for the week of 0.9002. There weren't much of interest by way of data and market-relevant news developments out of Asia. An article in the official China Securities Journal acknowledged that corporate debt default risks have multiplied, which will be of interest to those who have been living in a cave of late.

    [EUR, USD]
    EUR-USD dove to a two-week lower as the dollar surged across-the-board after Fed boss Yellen said there will be about a six-month period between the time when the Fed's bond buying program ends (late this year) and when the first rate hike will be seen. This followed the as-expected announcement of a further USD 10 bln in tapering of QE assets. EUR-USD settled to around 1.3830-40, up from the post-FOMC low of 1.3809, but still well off the pre-FOMC statement levels above 1.3900. We had been flagging the risk of dollar gains following the FOMC. The euro has, meanwhile, been stable against the yen and sterling, amongst other currencies. Our standing target of 1.3800 remains. Resistance comes in at 1.3860 and 1.3900.

    [USD, JPY]
    USD-JPY ebbed to the 102.20-30 area in Tokyo after spiking to a peak of 102.68 on the Fed's unexpected show of hawkishness. EUR-JPY held relative steady. In the bigger picture, USD-JPY looks stuck within a 100.00-105.00 band. 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 risk appetite). Support is at 101.00-101.25, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable hit a five-week low of 1.6508 in the wake of the Fed. The above-forecast U.K. labour market data set, released Wednesday, had underpinned sterling before the Fed sent a bearish message to GBP-USD. The minutes to the BoE MPC's March meeting had also showed that MPC members are concerned by the high level of the pound. We anticipate further declines in Cable, targeting 1.6750. Initial resistance is marked by the 20-day moving at 1.3651.

    [USD, CHF]
    EUR-CHF recovered to 1.2200 on Wednesday before ebbing back below. The CHF has unwound a portion of its safe-haven premium following the placating tone of Russia's Putin earlier in the week, which saw geopolitical tensions over Crimea recede. The market left the cycle low of 1.2104 unchallenged during the recent risk-off phase. SNB's Jordan had said last week that the central bank would defend the 1.2000 limit if concerns about Ukraine drove the franc higher. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. The SNB has signalled that it would only consider removing it if inflation was much higher (CPI dipped back to -0.2% y/y in February).

    [USD, CAD]
    USD-CAD surged above the late January major trend peak at 1.1224, making a new cycle high of 1.1271 on Wednesday. This reaffirms the bullish trend that was seen between October and January. Support comes in at 1.1200-1225, ahead of 1.1100-15. We target 1.1350. The decline in global stock markets and concomitant weakness in commodity prices have weighed on the CAD, while the unexpected show of hawkishness from the U.S. Fed saw yield differentials spike in favour of the U.S. dollar.

    Paste link in email or IM