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By XE Market Analysis May 28, 2015 3:11 am
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    XE Market Analysis: Europe - May 28, 2015

    USD-JPY logged the highest level since 2002, the AUD took at hit on unambiguously weak capital expenditure data out of Australia, while EUR-USD recouped to the 1.0900 area after leaving a one-month low at 1.0831 yesterday. There has been no change in the dominant bearish EUR-USD narrative: a continued lack of substantive progress in Greece's bailout negotiations with its creditors, and a dollar benefiting from the rekindled Fed tightening narrative. EUR-USD's high at 1.0929 and the 50-day moving average at 1.0955 provide upside markers. USD-JPY took out the June 2007 high at 124.16 before settling back under 124.00, leaving a 12-year peak at 124.30 on the nominal price chart. The December 2002 high at 125.72 provides the next big-picture focal point. The yen also logged a nine-day low against the euro today, with the Japanese currency winning the race to the underperformer of the week title. Although BoJ deputy governor Iwata said yesterday that he sees no need for further easing, the ultra loose 'Abecomics' monetary policies are still likely to be remaining in force when the Fed eventually reaches rate hike lift-off.

    [EUR, USD]
    EUR-USD recouped to the 1.0900 level after leaving a one-month low at 1.0819 on Wednesday. Yesterday's high at 1.0929 and the 50-day moving average at 1.0955 provide upside markers. There has been no change in the dominant bearish narrative that has driven the pair some 4% lower in eight of the last nine trading days after making a three-month peak 1.1486 on May-15. The continued lack of substantive progress in Greece's bailout negotiations with its creditors looks likely to remain a drag on the euro, while Eurozone May confidence data today should paint a similar picture to the sub-expectations May ZEW and PMI surveys of last week. The dollar, meanwhile, has been benefiting from the rekindled Fed tightening narrative. We see potential for a return to March-April lows at 1.0462 and 1.0520.

    [USD, JPY]
    USD-JPY took out the June 2007 high at 124.16 before settling back under 124.00, leaving a 12-year peak at 124.30 on the nominal price chart. The December 2002 high at 125.72 provides the next big-picture focal point. The yen also logged a nine-day low against the euro today, with the Japanese currency winning the race to the underperformer of the week title. BoJ deputy governor Iwata remarks yesterday that he sees no need for further easing have had little impact on the forex market as the ultra loose 'Abecomics' monetary policies are still likely to be remaining in force when the Fed eventually does reach rate hike lift-off. This backdrop should maintain an upside bias in USD-JPY.

    [GBP, USD]
    Sterling continues to trade mixed against the dollar and the euro. Cable left an eight-week low at 1.5301 yesterday, since recovering to the mid-1.53s. EUR-GBP, meanwhile, has firmed to the 0.7100 area after leaving an eight-week nadir at 0.7055. The UK PM commenced EU reform talks at the leaders summit in Riga last week just as the debate in the UK about EU membership, ahead of a pledged in-out referendum by 2017, kicks off in earnest. Airbus and Deutsche Bank waded in with threats to shift out a big chunk of their UK operations if the nation decided to quit the European Union. This background creates uncertainty for long-term investors, although the prevailing good fundamentals of the economy should prove an offsetting tonic, for now, especially as there seems reasonable ground to believe that the UK will eventually vote to remain in the EU. Cable is likely to remain entrenched below 1.5500 following a dive from the post-election peak of 1.5815.

    [USD, CHF]
    EUR-CHF has re-established itself below 1.0400 following recent euro underperformance. Swiss policymakers remain in a fight to curtail EUR-CHF's downside, though their options will be limited in context of broad euro weakness. SNB's Zurbrugg said last week that negative rates in force for as long as policy requires. The central bank last month expanded the number of groups subject to negative rates on deposits at the central bank in a fresh effort to curtail demand for the franc. The SNB said at its last policy review in March that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary."

    [USD, CAD]
    USD-CAD's rebound from sub-1.2000 levels extended to 1.2492. USD-CAD left a four-month low at 1.1920 on May-14, but we didn't see a convincing break of the big-picture support region at 1.1950-1.2000. The pair has now breached back above a previous support zone marked by 1.2351 to 1.2400, which leaves a convoluted technical picture. Resistance is 1.2500, support at 1.2450.

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