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By XE Market Analysis May 14, 2014 3:01 am
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    XE Market Analysis: Europe - May 14, 2014

    The AUD logged a one-month high versus the USD as the Sydney market returned to the nascent bullish theme with the Federal Budget now out the way (the budget was announcement during the evening the day before, and was generally considered near expectations and less austere than some pundits had warned). AUD-USD rose to 0.9409, the first time on a 0.94 handle since Apr-15. Helping the Aussie was a backdrop of mostly higher stock markets in Asia (though some, including Australia itself and Japan, were lower) following fresh records in U.S. indexes, in addition to a NZD rally after RBNZ's Wheeler said that a tightening could address price inflation. Elsewhere, GBP was bid into today's BoE Inflation Report and U.K. labour market data, which many consider will provide bullish leads for the currency. Cable logged a peak of 1.6869, which is over 30 pips above London's closing high of Tuesday, while EUR-GBP clocked at new 15-month low of 0.8134. USD-JPY saw subdued price action, once again, hovering in the low 102s. Japan's CGPI price gauge came in slightly above expectations at +4.1% y/y in April, up from 1.7% in March. EUR-USD recovered to the 1.372 area after seeing a new low of 1.3690 during the New York PM session..

    [EUR, USD]
    EUR-USD managed recover back above 1.3700 after seeing a new low of 1.3690 during the New York PM session on Tuesday. The EUR-USD market has turned sharply bearish, which had been in evidence by the lack of rebounds since the sharp ECB-induced loss of last Thursday-Friday before the fresh tumble, to sub-1.37 levels. A UBS research note, for instance, argues EUR-USD will fall to sub-1.3400 levels over the coming four weeks, based on forecasts for May Eurozone CPI and the May U.S. payrolls report, along with ECB action at its June policy meeting (UBS anticipates that the depo, refi and marginal rates will all be trimmed by 15 bp, but also argues that a narrower easing would still be a euro-selling catalyst). Resistance is now marked at 1.3774-80 (which encompasses the Apr-30 low) and 1.3800-15. On the downside, the Apr-4 low at 1.3672 offers the next target..

    [USD, JPY]
    USD-JPY saw subdued price action, once again, hovering in the low 102s. Japan's CGPI price gauge came in slightly above expectations at +4.1% y/y in April, up from 1.7% in March. USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    We remain sterling bullish, and we expect to see good demand on dips into this today's BoE Inflation Report, which should bring upward revision to inflation and growth projections and generally present a less dovish, more hawkish tone following a run of strong data out of the U.K.. The monthly batch of official U.K. labour market statistics should also come in on the firm side. The 1.7000 is the key upside level in Cable, a big psychological level and is reportedly a big option barrier. We have been recommending a EUR-GBP short as better vehicle for sterling bulls. The cross extended 15-month lows today.

    [USD, CHF]
    EUR-CHF has re-established a sideways direction anchored around 1.2200, having recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are key support levels. The threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying to some extent. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD firmed back to around 1.0900 after running to a low of 1.0812 on Friday. The pair has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. The still-dovish outlook for BoC policy seems to be putting a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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