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By XE Market Analysis May 29, 2015 3:13 am
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    XE Market Analysis: Europe - May 29, 2015

    EUR-USD logged a new rebound high of 1.0974 in Asian trade, piercing the 50-day moving average, which is presently sitting at 1.0969. The 1.1000 and Monday's high at 1.1013 provide near-to upside markers. Today makes it the third successive up day after hitting a one-month low at 1.0819 on Wednesday. USD-JPY settled back under 124.00 after capping out on Thursday at 124.46. Japan's finance minister Aso said late Thursday (from London) that recent yen weakness had been "rough" that we will "carefully monitor" currency moves. A batch of Japanese data today didn't have much market impact, but were net yen negative.

    [EUR, USD]
    EUR-USD logged a new rebound high of 1.0974 in Asian trade, piercing the 50-day moving average, which is presently sitting at 1.0969. The 1.1000 and Monday's high at 1.1013 provide near-to upside markers. Today makes it the third successive up day after hitting a one-month low at 1.0819 on Wednesday. We still expect, however, EUR-USD to retain an overall bias to the downside. There has been no change in the dominant bearish narrative that has driven the pair some 4% lower over the last couple of weeks after making a three-month peak of 1.1486 on May-15: the continued lack of substantive progress in Greece's bailout negotiations, and the rekindled Fed tightening theme. We see potential for a return to March-April lows at 1.0462 and 1.0520.

    [USD, JPY]
    USD-JPY settled back under 124.00 after capping out on Thursday at 124.46. Japan's finance minister Aso said late Thursday (from London) that recent yen weakness had been "rough" that we will "carefully monitor" currency moves. A batch of Japanese data today didn't have much market impact, but were net yen negative. Total CPI rose 0.6% y/y in April after the 2.3% y/y gain in March, with dramatic slowing in annual growth due to the April 2014 tax hike. Tokyo CPI edged lower to a 0.5% y/y pace in May from 0.7% in April. The BoJ has indicated there is no need for further easing, but the slowing Tokyo CPI and the mixed domestic growth figures suggest that more easing will eventually be needed. Household spending, meanwhile, fell 1.3% y/y in April, contrary to an expected increase to leave the biggest miss in today's data deluge. Industrial production slipped an as expected 0.1% y/y in April. Bottom line for USD-JPY: ultra-loose 'Abecomics' monetary policies are likely to be remaining in force when the Fed eventually does reach rate hike lift-off.

    [GBP, USD]
    Cable settled just above 1.5300 after making a three-week low at 1.5260 yesterday. EUR-GBP, meanwhile, edged out a nine-day peak at 0.7163. There has been some disappointing data out of the UK this week. Gfk consumer confidence for May disappointed at +1, diving from +4 in the previous month. The second estimate of UK Q1 GDP was also left unrevised at 0.1% q/q and 2.4% y/y, contrary to expectations for a one basis point revision on both counts. The data should take some of the shine out of the UK economic recovery narrative. The UK PM, meanwhile, is amid a European tour of national leaders to start EU reform talks. The debate in the UK about EU membership, which comes ahead of a pledged in-out referendum by 2017, has kicked off in earnest in the wake of the election. 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 has settled back in the mid-1.24s after leaving a six-week high at 1.2538. The retreat reflects a broader correction in the U.S. dollar following recent sharp gains. 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.

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