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By XE Market Analysis May 30, 2019 3:43 am
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    XE Market Analysis: Europe - May 30, 2019

    A moderate unwinding in risk-off positioning has been seen in currency markets. This comes with Wall Street having pared losses during the PM session yesterday and with S&P 500 futures showing modest gains, even though most Asian markets have remained nuder pressure today. USD-JPY lifted to an eight-day high at 109.76. , and the AUD-JPY cross managed to carve out an eight-day high, putting in some space from recent five-month lows. EUR-USD, meanwhile, has found a toehold after three straight days of decline, holding in the lower-to-mid 1.1100s, above the one-week low seen yesterday at 1.1126. Cable has similarly fond a footing, in the low-to-mid 1.2600s, above the five-month low that was seen last week at 1.2605. Rekindling prospects for Fed rate cutes, with two 25 bp loosenings now being price in by Fed funds futures markets by mid next year, have helped mollify investor nerves, although trade and geopolitical concerns look likely to persist.

    [EUR, USD]
    EUR-USD found a toehold after three straight days of decline, holding in the lower-to-mid 1.1100s, above the one-week low seen yesterday at 1.1126. We view EUR-USD as remaining in a bear trend which has been evolving since early 2018. This was reaffirmed by the new two-year low that was printed last week at 1.1107. Resistance comes in at 1.1215-18.

    [USD, JPY]
    USD-JPY lifted to an eight-day high at 109.76 while the AUD-JPY cross managed to carve out an eight-day high, reflecting an unwinding in risk-off positioning, which has seen the Japanese currency take at rotation lower. This comes with Wall Street having pared losses during the PM session yesterday and with S&P 500 futures showing modest gains, even though most Asian markets have remained nuder pressure today. Assuming that the U.S.-China trade war both deepens and persists, as is starting to look likely, this would likely set the Yen up for bouts of outperformance in the weeks and months ahead. USD-JPY has support at 109.05-08, and resistance at 109.57-60.

    [GBP, USD]
    Cable has found a footing in the low-to-mid 1.2600s, above the five-month low that was seen last week at 1.2605. The currency yesterday posted respective one-week and five-month lows against the dollar and yen. Cable's five-month low seen last week at 1.2605 has unchallenged for now. The UK currency is likely to remain vulnerable as the success at EU parliamentary elections of the Brexit Party, which favours a hard, no-deal-if-necessary Brexit, strengthens the odds for the Conservative Party to opt for a candidate with strong Brexit-supporting credentials to become the new party leader, and thereby the new prime minister. The results of the EU Parliament elections in the UK underscored the sharp polarisation in views about Brexit between the leave-without-a-deal option on the on hand, and remain-in-the-EU on the other. We continue to advise trend following with regard to Cable. Support comes in at 1.2600-05, and resistance at 1.2715-18.

    [USD, CHF]
    EUR-CHF has steadied after dropping precipitously by the norms of this cross over the last two weeks in a move that had been driven by outperformance in the Franc as global asset markets sputtered amid the entrenching trade war between the U.S. and China. The cross printed a seven-week low last Thursday at 1.1206, since recouping to around the 1.1250 mark. The punitive -0.75% overnight deposit rate is evidently not sufficient to deter the Swiss currency from still being seen as a safe haven. The SNB's Alternate Governing Board Member Moser said recently that in his view "if we had higher interest rates then we would have a stronger exchange rate", which something the central bank is ever eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said so far the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase.

    [USD, CAD]
    USD-CAD posted a new five-month high at 1.3546 after breaking above recent range highs. The price action is a reaffirmation of the bull trend that the pair has been since late 2017. The U.S. currency's relative attractiveness as a safe haven juxtaposed to the Canadian economy's terms-of-trade exposure to lower oil prices (which have been in a declining trend for over a month) should keep USD-CAD on an upward directional bias. Support comes in at 1.3415-20.

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