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By XE Market Analysis May 25, 2018 2:47 am
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    XE Market Analysis: Europe - May 25, 2018

    The dollar has returned to form, nudging higher versus the euro and yen, and most other currencies. EUR-USD is pressing on 1.1700 as the London interbank gets up an running, putting Wednesday's six-month low at 1.1675 back in the crosshairs. The Fed remains on a tightening track while the sentiment towards the Eurozone is being marred by Italy. USD-JPY has recovered to the 109.50 area from yesterday's 17-day low at 108.95. The lift has reflected part broader dollar firmness and par broader yen weakness. Stock markets recovered some poise Asia, and U.S. equity index futures also lifted some following a shaky session on Wall Street yesterday when the Trump administration cancelled the planned summit with North Korea. Pyongyang said today that it would still be willing to meet with the U.S. There are also reports that Mexico has made an offer to the U.S. in a bid to seal the NAFTA renegotiation.

    [EUR, USD]
    EUR-USD has turned back lower, and was pressing on 1.1700 just ahead of the London interbank open in what looks like a reassertion of the six-week bear trend. This puts Wednesday's six-month low at 1.1675 back in the crosshairs. The Fed remains on a tightening track while the sentiment towards the Eurozone is being marred by Italy and the risk of further paroxysms in Italian markets as investors digest the formulating policy proposals of an anti-establishment and Eurosceptic coalition government, formed by the unlikely alliance of right-wing and left-wing populist parties. Preliminary May PMI surveys out of the Eurozone also underwhelmed, pointing to a sustained slowing in the pace of economic growth in the region. Overall, we remain bearish of EUR-USD. Trend resistance comes in at 1.1734-35.

    [USD, JPY]
    USD-JPY has recovered to the 109.50 area from yesterday's 17-day low at 108.95. The lift has reflected part broader dollar firmness and par broader yen weakness. Stock markets recovered some poise Asia, and U.S. equity index futures also lifted some following a shaky session on Wall Street yesterday when the Trump administration cancelled the planned summit with North Korea. Pyongyang said today that it would still be willing to meet with the U.S. There are also reports that Mexico has made an offer to the U.S. in a bid to seal the NAFTA renegotiation. With sentiment improved, if not fully restored to a robust risk appetite, this has seen the yen track lower as some of its safe haven premium unwinds. USD-JPY's fundamental gauges are still flashing "buy," after all, with the Fed tightening cycle remaining on track while the BoJ is set to maintains monetary stimulus -- including its pegging of the 10-year JGB yield at near 0% -- into at least mid 2019, if not 2020, before exiting.

    [GBP, USD]
    Cable has tracked EUR-USD lower, giving up recovery gains yesterday to 1.3422 and returning to the mid 1.33s. This puts Wednesday's five-month low at 1.3305 back in scope. Above-forecast UK retail sales data of yesterday only provided the pound with fleeting support, with markets still mindful of the unexpected drop in UK CPI data for April. Today brings the second estimate of UK Q1 GDP, which should come in unrevised from the preliminary release outcomes of 0.1% q/q and 1.2% y/y. Big picture, we remain bearish of Cable. Support is at 1.3351-53, and resistance comes in at 1.3422-25.

    [USD, CHF]
    EUR-CHF has settled near 1.1600 after posting an 11-week low at 1.1581 on Wednesday, which was the culmination of what has been the sharpest bout of declines the cross has seen since June last year. The driving dynamic has been a souring sentiment towards the euro on concerns about the policies of the newly forming anti-establishment and Eurosceptic coalition government in Italy. EUR-CHF is down over 3% from the 41-month that was printed a month ago at 1.2005, which was the summit of an 11-month rally phase, and which in turn was a reflection of what had been -- before recently -- a sense of abating existential risks that the Eurozone was facing. Now things look to be trending back in the other direction. This week's breach and daily closes below the 200-day moving average, presently situated at 1.1695, has been for technical analysts a significant bearish signal. Trend resistance is at 1.1642-44.

    [USD, CAD]
    USD-CAD has maintained a choppy, broadly sideways range that's been persisting for a month now. The low over this period has been 1.2729 and the high 1.2997. General U.S. dollar firmness has been met by Loonie-supportive higher oil prices, which has been causing volatility in USD-CAD but little net directional bias. We expect more of the same for now.

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