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By XE Market Analysis November 10, 2017 3:15 am
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    XE Market Analysis: Europe - Nov 10, 2017

    The dollar has found its feet after yesterday's tumble on new of a U.S. tax cut delay and more limited scope of some planned cuts. EUR-USD has settled below the one-week high seen at 1.1655 and USD-JPY has recouped to around 113.40 after clocking a low at 113.09, which is the lowest level seen since October 31. A report that Republican Senator Cornyn is looking to avoid a one-year delay helped calm the risk-off vibe, while Fed member Williams repeated his view that a December rate hike "makes sense", with three more quarter-point hikes pencilled in for 2018. Trump, meanwhile, has been venting about the U.S. deficit with China. Production data will feature in Europe today, while the U.S. data schedule is quiet today, highlighted by the preliminary estimate of consumer sentiment for November. We expect markets will remain sensitive to the ongoing tax cut debate, with the speed and breadth of tax reductions now in question.

    [EUR, USD]
    EUR-USD has settled below the one-week high seen at 1.1655 yesterday following news that the implementation of the Senate corporate tax cut plan will be delayed by one year, while other cuts will be more limited in scope that previously proposed. A report that Republican Senator Cornyn is looking to avoid a one-year delay helped calm the risk-off vibe, giving the dollar an underpinning, while Fed member Williams repeated his view that a December rate hike "makes sense", with three more quarter-point hikes pencilled in for 2018. We expect markets will remain sensitive to the ongoing tax cut debate, with the speed and breadth of tax reductions now in question. EUR-USD's price action still remains consistent with the bearish trend that's been in evolution since early September, when the pair capped out after a five-month rally period at 1.2092. Key resistance levels are at 1.1687-91 and 1.1700.

    [USD, JPY]
    USD-JPY has recovered poise in Asia after tumbling yesterday on news that the implementation of the Senate plan to cut corporate tax in the U.S. will be delayed by two years and the extent of some other taxes will be trimmed. The news sparked a steep sell-off in U.S. and global equity markets, driving demand for the yen, among other perceived safe haven currencies and assets. A subsequent report that Republican Senator Cornyn is looking to avoid a one-year delay seemed to throw markets a lift line. USD-JPY pair has recouped to around 113.40 after clocking a low at 113.09, which is the lowest level seen since October 31. We expect markets will remain sensitive to the ongoing tax cut debate, with the speed and breadth of tax reductions now in question, which in turn should keep the yen in some demand while maintaining a weight on the dollar.

    [GBP, USD]
    Cable has settled near 1.3100. Incoming UK news have been net bearish, including a sub-forecast RICS house price data yesterday, which showed that price declines have spread out of London to several other regions, and the OECD's updated leading indicator for the UK finding intensifying signals for slower growth. While Cable has been trading in the low 1.30s, without directional bias, for over a month now, we still see risks being greater to the downside than to the upside. Cable has a series of daily lows that were seen in October between 1.3027 and 1.3039, which now form a key support zone. Resistance is at 1.3168-70.

    [USD, CHF]
    EUR-CHF has settled to a consolidation in the upper 1.15s. The 33-month peak seen in late October at 1.1712 has slipped off the radar screen, though we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

    [USD, CAD]
    USD-CAD ebbed to a 16-day low of 1.2666, reaffirming an evolving downward trend with the pair's two-month rally phase from sub-1.2100 levels looking to have stalled over the last week. BoC Governor Poloz in a speech this week reaffirmed guidance given last month by saying that "the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate." We project the next BoC rate hike to be in March. We expect USD-CAD to remain in a downward path for now. Resistance is at 1.2700-05, and support is at 1.2600-02.

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