Home > XE Currency Blog > XE Market Analysis: Europe - May 16, 2019

AD

XE Currency Blog

Topics6535 Posts6580
By XE Market Analysis May 16, 2019 3:24 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4493
    XE Market Analysis: Europe - May 16, 2019

    Currencies have seen little direction for the most part so far today. AUD-USD was an exception, dipping to a fresh four-month low at 0.6892 following sub-forecast Australian employment data. The pair subsequently recouped above 0.6900. EUR-USD idled near 1.1200, above the one-week low seen yesterday at 1.1178, and USD-JPY plied a narrow range near 109.50, above the three-month low seen on Monday at 109.02. In news, the Japanese government is set on downwardly revising its economic assessment, according to a Reuters report, citing an unnamed source. Mixed signals have been coming from President Trump on trade, yesterday buoying equity markets by signalling a delay in tariffs on European and Japanese car imports before his administration then blacklisted China's Huawei. The U.S. added Huawei and 70 affiliates to its "Entity List," which will bar the company from acquiring components and technology from U.S. firms without government approval. U.S. Treasury Secretary Mnuchin, meanwhile, said he intends to visit Beijing "soon" to continue trade negotiations. The mix of developments has in turn left equity markets mixed. S&P 500 futures are showing a 0.2% loss in overnight trading after the cash version of the index closed on Wall Street yesterday with a 0.6% gain. The Trump administration is clearly wanting to placate investor concerns about its trade war as much as possible, stressing that dialogue remains open with China, but at the same time take a tough course. With the U.S. economy strong and over a year before the presidential election, Trump will presumably continue to choose on taking a tough course with China. This in turn suggests markets will remain on a volatile path for now.

    [EUR, USD]
    EUR-USD has been idling near 1.1200, above the one-week low seen yesterday at 1.1178. How the dollar performs during what we assume will be a new phase of heightened trade tensions between the U.S. and China will be a key determinant of EUR-USD's directional bias. If previous episodes of tensions over the last year are anything to go by, the U.S. currency may continue to firm against the euro, being apt to perform as a liquid safe haven currency during phases of risk-off positioning in global markets. 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 been plying a narrow range near 109.50, above the three-month low seen on Monday at 109.02. The Japanese government is set on downwardly revising its economic assessment, according to a Reuters report, citing an unnamed source, although to little impact on the Yen. We anticipate that the Japanese currency will be apt to appreciate in bouts over the coming months, assuming that the U.S.-led trade war will remain intense. While President Trump is clearly wanting to placate investor concerns about its trade war as much as possible, stressing that dialogue remains open with China, with the U.S. economy strong and over a year to go before the 2020 presidential election, we anticipate the Trump administration will continue to play hardball with China on trade. This in turn suggests markets will remain on a volatile path. USD-JPY has support at 109.02-05, and resistance at 110.05-08.

    [GBP, USD]
    Sterling has extended losses yesterday. Cable, which has been on a four-day losing streak, breached April lows on route to printing a three-month low at 1.2826. EUR-GBP concurrently posted three-month highs, and GBP-JPY a three-month low. Brexit is to blame. UK Prime Minister May announced there would be another parliamentary vote on Brexit in early June, to which Labour and other opposition parties promptly said that they will vote it down unless, in the case of Labour, the vote is on a cross-party deal, which at this juncture looks unlikely (the government and Labour remain in negotiations). May said that if Parliament fails to agree on a Brexit deal in June, then the choice will be between a no-deal Brexit or remaining in the EU. This comes with the newly established Brexit Party, which favours a no-deal exit from the EU, running high in the polls. This has rattled markets somewhat. EU parliamentary elections on May 23 will be an updated litmus test on public support for Brexit in the UK, with MEP (European parliament members) candidates standing from both pro Brexit and pro Remain-in-the-EU parties. Market participants will likely view this as a proxy vote on a second Brexit referendum, if there is to be one (which is looking increasingly likely). The prolonged political uncertainty, meanwhile, has been having an erosive impact on the UK economy, particularly in business investment. We advise trend following Cable for now. Resistance at 1.2904-05.

    [USD, CHF]
    EUR-CHF, in this week posting a five-week low at 1.1264, 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 this week said the country would break EU budget rules on debt if necessary to spark employment. The SNB's Alternate Governing Board Member Moser said during a panel discussion yesterday that in his view "if we had higher interest rates then we would have a stronger exchange rate", something the central bank is eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said so far the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase. EUR-CHF has resistance at 1.1320-23.

    [USD, CAD]
    USD-CAD has ebbed from the upper 1.3400s to the lower 1.3400s over the last day. The move has been concomitant with a rise in oil prices and stabilisation in equity markets following placating remarks from the Trump administration on the trade front. Overall, we expect USD-CAD to remain upwardly biased, which the pair has been since October 2017, anticipating a revisit, and break above, the recent trend peak at 1.3521. Support comes in at 1.3400-05.

    Paste link in email or IM