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By XE Market Analysis May 18, 2017 3:23 am
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    XE Market Analysis: Europe - May 18, 2017

    The dollar steadied after posting fresh lows as the "Trump trade" unwind continued after the New York close. The main equity indicies in Asia fell, taking their cur from Wall Street amid concerns that the Trump growth agenda is in jeopardy. USD-JPY losses extended for a second day. A three-week low was made at 110.52 in early Asia-Pacific dealings, with the pair subsequently managing to settle back above 111.00. EUR-JPY reversed recent gains as the yen outperformed, dropping quite sharply to a low of 123.42, putting in some distance from the two-year high the cross saw on Tuesday. The drop in EUR-JPY reflects yen outperformance as the Japanese safe haven premium rises, while EUR-USD logged a fresh six-month peak amid dollar outperformance. The high was at 1.1171, with the pair subsequently settling in the lower 1.11s.

    [EUR, USD]
    EUR-USD logged a fresh six-month peak amid dollar underperformance. The high was at 1.1171, with the pair subsequently settling in the lower 1.11s. EUR-JPY, in contrast, reversed recent gains as the yen outperformed, dropping quite sharply to a low of 123.42, putting in some distance from the two-year high the cross saw on Tuesday. The drop in EUR-JPY reflects yen outperformance as the Japanese safe haven premium rises. The Wall Street wobble and concerns about the plight of the Trump administration has been eroding expectations for the Fed to hike at its FOMC in June, should market turmoil persist, a backdrop which in turn has been negatively affecting the dollar. On the euro side of the equation, data have been generally encouraging, which along with the abatement of political existential risk in the Eurozone following the French election earlier in the month, looks set to pave the way for the ECB to finally make a start at de-stimulating monetary policy. We recommend following the EUR-USD trend. Former resistance is at 1.1053-55 now reverts as support, while the high from last November at 1.1299 provides an upside marker.

    [USD, JPY]
    USD-JPY losses extended for a second day as the "Trump trade" unwind continued. A three-week low was made at 110.52 in early Asia-Pacific dealings, with the pair subsequently managing to settle back above 111.00. EUR-JPY reversed recent gains as the yen outperformed, dropping quite sharply to a low of 123.42, putting in some distance from the two-year high the cross saw on Tuesday. The main equity indicies in Asia fell, taking their cur from Wall Street amid concerns that the Trump growth agenda is in jeopardy. This backdrop has been driving up the safe haven premium of the yen. USD-JPY support is at 110.00-02, and resistance is at 111.60. We recommend fading gains and following the nascent trend.

    [GBP, USD]
    Cable yesterday matched last week's seven-month high at 1.2990, since settling around 1.2950. The buoyancy is stemming from broader weakness in the dollar, with Fed tightening expectations ebbing amid concerns that the evolving political crisis across the pond is jeopardizing the Trump reflation plan. We had been arguing that Cable was looking ripe for a corrective phase following a two-month rally from levels near 1.2100, but now advise caution with near-term dollar prospects looking to be something of a wild card. Resistance is at 1.2990 and 1.3000, where good option related selling interest is likely. Support is at 1.2905. The pound has been trading at seven-week low versus the euro, and is down against the yen this week. Recent UK data have been encouraging, though not sufficiently so to shift BoE policy expectations much. The UK's central bank has been holding a neutral stance into Brexit negotiations, which won't likely get into full gear until after the German elections in September.

    [USD, CHF]
    EUR-CHF has drifted to the lower 1.09s, putting in a little distance from the eight-month high that was seen last week at 1.0978. The cross remains well up on the sub-1.07 levels that were prevailing in April before the French presidential elections, which reflects an unwinding in franc safe-haven premium (of which there is still some despite a punishing -0.75% deposit rate).

    [USD, CAD]
    USD-CAD remains heavy, this time amid broader greenback weakness while oil prices consolidate the strong gains that were seen earlier in the week. USD-CAD breached support is 1.3643-47, which now reverts as resistance.

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