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By XE Market Analysis May 15, 2019 3:23 am
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    XE Market Analysis: Europe - May 15, 2019

    The Dollar majors have mostly been trading steadily, holding within respective Tuesday ranges. One exception was AUD-USD, which edged out a new four-month low at 0.6922, which reflected Aussie Dollar weakness as markets reacted to soft Chinese data today. China's April industrial production decelerated from the four-and-a-half-year high seen in March while China's retail sales dove to a 16-year low. The Australian currency is directionally sensitive to Chinese data, being viewed as a liquid forex market proxy of China. AUD-JPY also weakened, though remained above the trend lows seen on Monday. Elsewhere, EUR-USD has been maintaining a narrow range in the lower 1.1200s, with the euro consolidating losses seen yesterday after Italy's deputy prime minister said the country would break EU budget rules on debt if necessary to spark employment. USD-JPY, meanwhile, has been treading a narrow path in the mid 109.00s. Stock markets in Asia have lifted, with the MSIC Asia-Pacific index bouncing over 0.5% today from a three-and-a-half-month low that was seen yesterday. S&P 500 futures are showing a gain of 0.3% in overnight trading after the cash version of the index closed with a 0.8% gain yesterday, clawing back some of the steep losses that were seen on Monday. President Trump, doubtlessly mindful of Wall Street's sensitively to the trade warring rhetoric, said he has "very good" dialogue with China, stressing that trade negotiations had not collapsed. The calmer waters aided the Chinese yuan higher after the currency hit a five-moth low against the dollar yesterday.

    [EUR, USD]
    EUR-USD has been maintaining a narrow range in the lower 1.1200s, with the euro consolidating losses seen yesterday after Italy's deputy prime minister said the country would break EU budget rules on debt if necessary to spark employment. Big picture, we still view EUR-USD as remaining in a bear trend which has been evolving since early 2018. The pair had been in a rebound phase over the last couple of weeks after posting trend lows in both March and April. Resistance comes in at 1.1264-65.

    [USD, JPY]
    USD-JPY has bee treading a narrow path in the mid 109.00s, above recent lows after the Japanese currency saw some of its safe-haven premium unwind. Stock markets in Asia lifted today, with the MSIC Asia-Pacific index bouncing over 0.5% from the three-and-a-half-month low that was seen yesterday. S&P 500 futures are showing a gain of 0.3% in overnight trading, as of the early London AM session, after the cash version of the index closed with a 0.8% gain yesterday, clawing back some of the steep losses that were seen on Monday. President Trump, doubtlessly mindful of Wall Street's sensitively to the trade warring rhetoric, said he has "very good" dialogue with China, stressing that trade negotiations had not collapsed. The calmer waters aided the Chinese yuan higher after the currency hit a five-moth low against the dollar yesterday. Weak production and retail sales data out of China, the latter of which hit a 16-year low, encouraged market speculation that Beijing will return to the stimulus spigot.

    [GBP, USD]
    Sterling has returned to a softening path, posting respective two-week and two-month lows against the dollar and euro. Cable's lows is at 1.2904, which extends the quite-steep decline from the early May peak at 1.3176, itself the loftiest point reached over the last six weeks. The pound failed to sustain gains seen after UK labour data yesterday, which showed the unemployment rate unexpectedly fell to 3.8% in March, the lowest rate seen since December 1974. However, average household income disappointed, with the bonus-included figure dipping to 3.2% y/y in the three months to March, down from 3.5% y/y in February. As we noted, too, more timely and forward looking PMI surveys for April highlighted a stagnation in the employment market, so we would advise caution in reading too much into the new cycle low in unemployment. We have been advising a bearish view of the pound. The unresolved Brexit mess, a month from the three-year anniversary of the vote to leave the EU, remains a negative given the impact of prolonged political uncertainty on business investment. The risk of a disorderly no-deal Brexit also remains a possibility, if not a probability. Cable has resistance at 1.2967-70, and support at 1.2904-05.

    [USD, CHF]
    EUR-CHF, in this week posting a one-month low at 1.1288, has corrected over half of the gains seen during the pronounced rally that was seen in April. Concerns about Eurozone growth and political situation have been exerting an influence on the Euro and EUR-CHF cross. Italy's deputy prime minister said yesterday the country would break EU budget rules on debt if necessary to spark employment. EUR-CHF has resistance at 1.1320-23.

    [USD, CAD]
    USD-CAD has continued to consolidate towards the upper reaches of the recent range, above 1.3450 after rebounding from the two-week low seen at 1.3388 last Friday following the bearish combo of soft U.S. April CPI data and forecast-beating strength in Canada's April employment report. Canada releases April CPI today. We expect CPI to grow 0.5% in April after the 0.7% surge in March, lifting the annual growth rate to 2.0% from 1.9% in March. we expected a more benign picture to show in core CPI data, which had been surprisingly firm in March, boosted by temporary factors. We continue to expect USD-CAD to revisit, and break above, its trend peak at 1.3521. Support comes in at 1.3400-05.

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