Home > XE Currency Blog > XE Market Analysis: Europe - May 22, 2014

AD

XE Currency Blog

Topics7232 Posts7277
By XE Market Analysis May 22, 2014 2:40 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5156
    XE Market Analysis: Europe - May 22, 2014

    The AUD rose and the JPY weakened as risk appetite picked up in Asia following a much stronger than expected China PMI release, which came in at 49.7, a five-month high and well up on the Reuters median for an unchanged 48.1. The MSCI Asia Pacific equity index was showing a 1.2% gain as of late PMI session in Tokyo. This encouraged the market to buy AUD, which snapped a three-day decline and rose above yesterday's peak at 0.9252 to 0.9274. AUD-JPY surged as USD-JPY lifted above 101.50 to a peak of 101.68, a new high for the week having recovered from Wednesday's 100.82 low. The yen followed its usual inverse correlation with risk appetite and stock market direction. Data also showed that Japanese demand for foreign bonds is at a nine-month high. Elsewhere, the USD posted marginal gains versus the EUR and GBP. The FOMC minutes showed the Fed openly discussing its options for policy normalization, but without signalling anything imminent.

    [EUR, USD]
    It has remained the case that there has been a distinct lack of substantive rebounds since the ECB-initiated drop on May-8. ECB-speak has remained dovish, and the recent generally more defensive tone in Eurozone peripheral bond markets and recent underperformance in European equities, despite expected ECB easing at the upcoming meeting in June, are bearish drivers of the euro. Incoming U.S. data, meanwhile, has and should continue to show recovery from the weather-affected Q1 performance. We are expecting good outcomes in this week's jobless claims, leading indicators and home sales data. We anticipate EUR-USD will return to levels around 1.3500 over the coming weeks, which will cover the period of the ECB's June meeting, Eurozone May inflation data, and U.S. May payrolls report.

    [USD, JPY]
    The JPY weakened as risk appetite picked up in Asia following a much stronger than expected China PMI release, which came in at 49.7, a five-month high and well up on the Reuters median for an unchanged 48.1. The Nikkei rose just over 2% while the MSCI Asia Pacific equity index was showing a 1.2% gain in late session. This encouraged the market to sell yen and USD-JPY lifted above 101.50 to a peak of 101.68, a new high for the week having recovered from Wednesday's 100.82 low. The yen followed its usual inverse correlation with risk appetite and stock market direction, while data also showed that Japanese demand for foreign bonds is at a nine-month high. Bigger picture, USD-JPY still 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]
    Sterling failed to hold gains above 1.6900 yesterday but is holding strong against the generally weak euro. We have been targeting 0.8000 in EUR-GBP. We are less bullish on Cable as we are bearish on EUR-GBP as we expect increasing signs of economic improvement out of the U.S. Initial EUR-GBP support is at 0.8085 (Wednesday's low). Cable resistance is at 1.6920-30 (which encompasses yesterday's peak). The second estimate of U.K. Q1 GDP is up today, which is widely expected to be confirmed at 0.8% q/q and 3.1% q/q.

    [USD, CHF]
    EUR-CHF has settled in the low 1.22s. The cross recently 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 recovered the 1.0900 handle. The pair has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

    Paste link in email or IM