Home > XE Currency Blog > XE Market Analysis: Europe - Mar 26, 2014

AD

XE Currency Blog

Topics7698 Posts7743
By XE Market Analysis March 26, 2014 3:38 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5622
    XE Market Analysis: Europe - Mar 26, 2014

    The AUD rose to a new trend high of 0.9201 against the USD, which was the first time above the 0.92 level since last November. This is now the fourth day the Aussie has breached above its previous day's high. Today's trigger was a speech by RBA Governor Stevens, whose refrain from talking down the currency was taken by market participants as a tacit sign of a more accepting attitude to what the RBA previously described as a historically weak currency. There is also speculation that China will announce fresh stimulus at some point, which has been behind the recent gains. Elsewhere, the other main currencies have seen pretty featureless trade. USD-JPY and EUR-USD have held well within their respective Tuesday ranges, the former pairing around the 102.30 mark and the latter making time in the low 1.38s. Asia stocks traded higher today, following Wall Street's lead. News that North Korea fired two mid-range ballistic missiles toward Japan didn't seem to rattle markets.

    [EUR, USD]
    The euro has consolidated in around 1.3800 after some whippy price action this week. We still prefer a bearish view of EUR-USD as the ECB is likely to remain in dovish mode for sometime yet given the deflation threat and concerns about euro strength (as pointed to by Draghi last week), while we anticipate the U.S. economy to strengthen in Q2. Resistance is marked at 1.3876 and 1.3900.

    [USD, JPY]
    USD-JPY continues to seen featureless trade, holding around 102.30 during the Tokyo session today. 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 and 101.34, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Cable has consolidated back above 1.65 after making a new five-week low of 1.6460 on Monday, which extended a two-week trend lower. We continue to target Cable to 1.6400, with our former long-standing 1.6500 having been met. We would see this as part of a bigger-picture correction after the strong rally phase from July last year to February this year. Fundamentally we anticipate a moderation in the pace of U.K. recovery, while we anticipate a pick-up in the U.S. recovery in Q2.

    [USD, CHF]
    EUR-CHF punched back above 1.2200, which reflects an unwinding of the Swiss franc's safe-haven premium as tensions with Russia over the Crimea and Ukraine issue haven't, so far, been as bad as feared. Gold and other safe haven assets have also seen the premiums come off. The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. We see potential for a recovery to the 1.2300-1.2400 area, assuming there are no renewed flare-ups in geopolitical tensions. The 1.2200 is now marked as a support level. SNB's Jordan earlier in the month 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 has consolidated after surging last week through the late January major-trend peak at 1.1224 to make a new cycle high of 1.1278. This reaffirmed the bullish trend that was seen between October and January. Support comes in at 1.1173-75, ahead of 1.1100-15. We target 1.1350. The unexpected show of hawkishness from the U.S. Fed at the recent FOMC contrasts with the dovish stance of the BoC, and has seen yield differentials spike in favour of the U.S. dollar.

    Paste link in email or IM