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By XE Market Analysis November 1, 2018 3:44 am
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    XE Market Analysis: Europe - Nov 01, 2018

    The Dollar has come under pressure today, initially via short-squeezes in AUD-USD, NZD-USD and GBP-USD, and latterly by a rebound in EUR-USD, which has recouped to the mid 1.1300s from yesterday's four-month low at 1.1302. The Aussie and Kiwi Dollars, meanwhile, are showing 1%-plus gains, and Cable is up by 0.8%. Data showing Australia racked up a bigger trade surplus than expected provided a catalyst for AUD-USD and AUD-JPY buying, while news that the UK and EU have tentatively agreed a deal that would allow UK financial services companies continued access to EU markets after Brexit helped give Sterling a boost. AUD-JPY had recently been trading at two-year lows, and markets had built up a relatively extreme net short exposure. Ditto for the Pound, which has been weighed down by Brexit uncertainty, but which has been looking ripe for a short squeeze. USD-JPY has been comparatively stable, holding a range in the upper 112.0s.

    [EUR, USD]
    EUR-USD has recouped to the mid 1.1300s from yesterday's four-month low at 1.1302. We remain bearish of EUR-USD with signs of flagging economic growth momentum in the Eurozone, along with concerns about the Eurosceptic political movement, juxtaposing a U.S. economy in relative health with the Fed remaining on a tightening track. EUR-USD resistance comes in at 1.1412-15.

    [USD, JPY]
    USD-JPY has plied a range in the upper 112.0s while most Yen crosses have lifted, led by strong gains in AUD-JPY, NZD-JPY and GBP-JPY, which has been seen amid a backdrop of overall improved risk appetite in global stock markets, which has sparked a short squeeze on these currencies. Data showing Australia racked up a bigger trade surplus than expected provided a catalyst for AUD-USD and AUD-JPY buying, while news that the UK and EU have tentatively agreed a deal that would allow UK financial services companies continued access to EU markets after Brexit helped give Sterling a boost. AUD-JPY, which has recently been trading at two-year lows, is showing a gain of 0.6%, although 15 pips off its highs. USD-JPY's fundamentals (yield differentials and the associated contrast between Fed and BoJ policy paths) remain supportive, although periodic episodes of risk aversion has been an intermittent offsetting bearish force. USD-JPY has support at 112.35-37.

    [GBP, USD]
    Sterling has lifted on news that the EU and UK have reached a tentative agreement to allow UK financial service companies continued access to EU markets post Brexit, according to a report in the London Times. Cable rallied over 0.75% in pegging a one-week high at 1.2870. GBP-JPY gained and EUR-GBP declined by similar magnitudes as a squeeze was put on a market running a heavily short net exposure to the Pound. We would advise caution as the principal hurdle to a Brexit deal being done -- the Irish border backstop plan -- remains unresolved. The BoE's Monetary Policy Committee concludes its November meeting today, announcing at midday in London. No changes are widely anticipated for either the repo rate or QE. The central bank's quarterly Inflation Report will provide updated projections on inflation and growth, which we expect to be little changed from the previous report in August, although an upward nudge in inflation projections seems likely. The BoE is likely to repeat its message that a gradual, 25 bp hike in the repo rate per year policy path is in play. The BoE will caveat its forecasts with increased wariness about Brexit uncertainty and risks stemming from what appears to be a worsening in the global business environment (diminishing monetary liquidity, trade protectionism, geopolitical risks). Cable has resistance is at 1.2778-80.

    [USD, CHF]
    EUR-CHF has recouped back above 1.1400, recovering rom the four-week printed at 1.1355 last Wednesday, which extended a descent from levels above 1.1500. Signs of flagging Eurozone growth and concerns about the Eurosceptic populist movement have seen the common currency fall out of favour. EUR-CHF has support at 1.1355-62, which encompasses the recent low and the prevailing situation of the 50-day moving average.

    [USD, CAD]
    USD-CAD has drifted back to the lower 1.3100s after yesterday edging out a seven-week high at 1.3170. Recent sharp oil price declines, which fell by over 15% in October, have been weighing on the Canadian dollar as markets factor in an erosion in Canada's terms of trade as the price of the economy's principal export earner wanes. WTI benchmark futures printed a fresh 11-week low yesterday, at $64.73. Canada's October employment is up tomorrow, where we project an expansion of 15.0k after the 63.3k surge in September. USD-CAD has support at 1.3089-92.

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