Home > XE Currency Blog > XE Market Analysis: Europe - May 17, 2018

AD

XE Currency Blog

Topics5343 Posts5388
By XE Market Analysis May 17, 2018 3:36 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3580
    XE Market Analysis: Europe - May 17, 2018

    The dollar and yen traded moderately lower during the Tokyo session, ahead of the London interbank open. USD-JPY has oscillated in the lower 110.0s, holding in a consolidation below the 13-week high that was posted yesterday at 110.45. The intraday low so far is 110.07. Sterling rallied on reports that the UK government will agree to staying in the EU's customs union, which is a last resort "backstop" plan to avoid the imposition of a hard Irish border, while above-forecast Australian employment data gave the Australian dollar a lift. The euro managed to recover some of ground lost yesterday, which was seen amid unsettling political evolutions in Italy. EUR-USD yesterday clocked a low of 1.1763, a five-month nadir, in what is now the fifth consecutive weekly decline the pairing has seen, before rebounding to a 1.1817 today and then turning lower once again.

    [EUR, USD]
    The euro managed to recover some of ground lost yesterday, which was seen amid unsettling political evolutions in Italy, where the Five Star Movement and the League are in talks to form a coalition government, and who are reportedly considering asking the ECB to forgive EUR 250 bln of Italian debt. EUR-USD clocked a low of 1.1763, a five-month nadir, in what is now the fifth consecutive weekly decline the pairing has seen. The pair subsequently rebounded to 1.1817 before turning lower once again. The supply of euros washing through markets has seen EUR-CHF break sharply lower over the last day, interrupting a bull trend that's been in development since mid last year. The cross is showing its biggest intra-week loss since January, breaching below both its 20- and 50-day moving averages yesterday. We continue to advise a trend following approach for EUR-USD.

    [USD, JPY]
    USD-JPY has oscillated in the lower 110.0s, holding in a consolidation below the 13-week high that was posted yesterday at 110.45. The intraday low so far is 110.07. The stability in the pairing masks broader, albeit moderate, weakness that both the dollar and yen have seen against other currencies, most particularly sterling, which has rallied during the Asian session on reports that the UK government will agree to staying in the EU's customs union, which is a last resort "backstop" plan to avoid the imposition of a hard Irish border. GBP-JPY is presently showing a gain of 0.3%, while Cable is up by 0.4%. AUD-JPY also lifted, aided by an above-forecast Australian employment report. In other relevant news, Japan's government said that it will inform the WTO that it is ready to retaliate against U.S. tariffs. There was also more rhetoric from Chinese officials on trade ahead of tomorrow's talks in Washington, with Beijing announcing it will end tariff concessions on U.S. fruit and port imports. Overall, we remain bullish of USD-JPY with the sharply contrasting Fed versus BoJ monetary policy stances likely to persist into 2019. Support is at 109.78.80 and 109.47-50.

    [GBP, USD]
    Sterling has lifted on news that the UK government has approved plan to stay in EU's customs union, according to a Telegraph report. Cabinet ministers apparently signed off on this on Tuesday in what is reported to be a last resort "backstop" plan to avoid the imposition of a hard Irish border, which has proved to be a politically monumental obstacle in the Brexit negotiation process. Market participants will be looking for more detail on this today. Cable rose by nearly 0.5% during the pre-London session in Asia, logging a peak at 1.3568, before stalling out, well off the week's high seen on Monday at 1.3608. Overall, we remain bearish of Cable, anticipating the Fed to remain on a relatively hawkish policy path relative to the BoE for some time to come. Cable has support at 1.3478-80.

    [USD, CHF]
    EUR-CHF logged a five-week low yesterday at 1.1771 in synchrony with EUR-USD's swan dive to a five-month low at 1.1763, with both the cross and the pairing subsequently rebounding some. EUR-CHF lifted to 1.1830. Declines so far this week are marking the biggest intra-week decline since early January, interrupting a bull trend that's been in development since mid last year. Given that EUR-CHF is a good proxy of the Swiss franc's trade weighted value, and given Swiss policymakers view of the currency has still being overvalued, the latest price action won't been pleasing to the SNB, which can be expected to remain fully committed to its prevailing NIR policy. Former range lows at 1.1734-37, seen in early April, mark both a target and support.

    [USD, CAD]
    USD-CAD flopped back to the mid 1.2700s after flipping to a peak of 1.2924 earlier in the week. The recent ramp up in U.S. yields has been a support on the one hand, while the concurrent ramp up in oil prices have been a downward driver on the other hand, which have accounted for the choppy price action while leaving USD-CAD showing little net direction over the last week. We expect more of the same. Support comes in at 1.2729-30.

    Paste link in email or IM