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By XE Market Analysis March 20, 2017 4:23 am
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    XE Market Analysis: Europe - Mar 20, 2017

    The dollar has remained under the cosh. USD-JPY edged out a three-week low at 112.47, making this the fourth straight day of lower lows this pairing has seen. EUR-USD is heading in to the London interbank open at intraday highs above 1.0750, with Friday's six-week peak t 1.0782 back into scope. AUD-JPY is trading at four-week highs. Lower U.S. Treasury yields have been driving in the wake of last week's less hawkish than expected Fed guidance, followed-up on Friday by the soft inflation readings from the University of Michigan consumer sentiment report, where the 5-year index slid to an all-time low pace of 2.2%. Fed speakers dominate today's otherwise subdued calendar. We recommend buying into USD-JPY weakness given the contrasting Fed versus BoJ stances, assuming global investor risk appetite holds up.

    [EUR, USD]
    EUR-USD has held well bid, trading back above 1.0750, aided by hotter than expected German PPI inflation data, which jumped to a rate of 3.1% y/y from 2.4%. Friday's six-week peak t 1.0782 is in the scopes. Lower U.S. Treasury yields have been driving the pair in the wake of last week's less hawkish than expected Fed guidance, followed-up on Friday by the soft inflation readings from the University of Michigan consumer sentiment report, where the 5-year index slid to an all-time low pace of 2.2%.

    [USD, JPY]
    USD-JPY edged out a three-week low at 112.47, making this the fourth straight day of lower lows this pairing has seen. This move is a reflection of broader dollar declines, with EUR-JPY and AUD-JPY, among other yen crosses, trading higher. Lower U.S. Treasury yields have been driving in the wake of last week's less hawkish than expected Fed guidance, and after the soft inflation readings from the University of Michigan consumer sentiment report, where the 5-year index slid to an all-time low pace of 2.2%. We maintain that the fundamental case for USD-JPY is bullish, with the BoJ's no change policy decision last week, accompanied by a pledge from governor Kuroda to maintain "powerful monetary easing," standing in stark contrast to the tightening course of the Fed, even if its communication wasn't as hawkish as markets had anticipated. We look for a rebound in USD-JPY, targeting 115.00. Support is at 112.16-20, ahead of 111.68-70.

    [GBP, USD]
    Sterling has been more than holding its own in recent session, benefiting from general dollar weakness and last Thursday's unexpected dissention in favour of hiking the repo rate by 25bp by MPC member Forbes at the BoE's March policy meeting, along with a hawkish twist on inflation risks in the minutes. Sterling has been quite volatile lately, making regular appearances both at the bottom and at the top of the day's winners and losers tables. More of the same looks likely going into the Brexit negotiation phase. Cable has logged a three-week peak today at 1.2436 having rallied from levels in the mid 1.22s. Support is at 1.2387-90.

    [USD, CHF]
    EUR-CHF has settled to an oscillation around 1.0700 after chopping amid euro volatility in recent sessions. The SNB left policy unchanged at its quarterly policy review last week, as expected, and repeated its boilerplate complaint that the franc remains "significantly overvalued," which was also to have been expected. EUR-CHF resistance is 1.0788-90, support at 1.0684-90.

    [USD, CAD]
    USD-CAD has consolidated its post-Fed losses after extending to a 16-day low at 1.3276 last Thursday, with the pair since settling in the 1.33s. We have been recommend buying into weakness given the recent break lower in oil prices and with the Fed only at the beginning of what is looking likely to be a protracted tightening cycle. We target December highs near 1.3600. Interim resistance is at 1.3420-25.

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