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By XE Market Analysis November 12, 2014 2:53 am
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    XE Market Analysis: Europe - Nov 12, 2014

    The dollar has traded steady-to-softer. EUR-USD lifted to a peak of 1.2493, though yesterday's high 1.2499 untroubled. USD-JPY dipped to a low of 115.09 before recouping to the mid-115s, consolidating after extending to a fresh 6-year peak of 116.10 yesterday. BoJ boss Kuroda repeated his dovish views during testimony before parliament, arguing that the QQE program is not threating to cause excessive inflation. Japan's chief cabinet secretary Suga, meanwhile, poured cold water on election rumours, and also denied reports that there will be a delay in a planned second sales tax hike. EUR-CHF perked up, reaching 1.2038 following remarks by SNB President Jordan, who said that the 1.2000 cap will remain in place for the "foreseeable" future as it is essential for preventing deflation. Elsewhere, RBNZ Governor Wheeler repeated his view that the NZD remains overvalued.

    [EUR, USD]
    EUR-USD lifted to a peak of 1.2493, though left yesterday's high at 1.2499 untroubled. The euro was unperturbed was remarks from ECB's Mersch, who said on Tuesday that the central bank will be ready to buy ABS next week. There is also growing conviction that the central bank will at least have to widen the scope of asset purchases to include corporate bonds if it wants to expand its balance sheet towards the EUR 3 trillion mark. We remain bearish in the bigger picture on the basis of our anticipation for higher growth in the U.S. relative to the Eurozone over the next six months, looking for an eventual move on the Oct 2012 low at 1.2040. Nearer-term trend resistance is marked at 1.2399-400.

    [USD, JPY]
    USD-JPY dipped to a low of 115.09 before recouping to the mid-115s, consolidating after extending to a fresh 6-year peak of 116.10 yesterday. BoJ boss Kuroda repeated his dovish views during testimony before parliament, arguing that the QQE program is not threating to cause excessive inflation. Japan's chief cabinet secretary Suga, meanwhile, poured cold water on election rumours, and also denied reports that there will be a delay in a planned second sales tax hike. Our long-standing target at 115.00 was finally met last week, though we still think divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY.

    [GBP, USD]
    Cable has retreated back below 1.59 amid broad dollar strength. The pair logged a 13-month low at 1.5790 last Friday, which took out our target of 1.5854 (which was the November 2013 low). We anticipate more of the same as we see U.K.'s recovery pace will continue to ebb over the coming quarter due to the impact of economic stagnation across the Channel and de-acceleration in some key emerging markets. This will likely contrast to the situation Stateside. Resistance is at 1.5945-50, 1.6000 and 1.6022-28 (former highs), support at 1.5887-90 and 1.5824-25.

    [USD, CHF]
    EUR-CHF perked up, reaching 1.2038 following remarks by SNB President Jordan, who said that the 1.2000 cap will remain in place for the "foreseeable" future as it is essential for preventing deflation. The cross had seen a 26-month low at 1.2021 on Tuesday. The franc hasn't seen the south side of 1.2000, the SNB's cap, since it was implemented in Sept 2011. The central bank looks likely to be heading to make its first intervention since 2012, and can be expected to be resolute in any new defence of 1.2000. Jordan said in October that negative interest rates could be deployed as an extra defence if need be. Euro weakness and bouts of risk aversion have been weighing on EUR-CHF recently, while the approach of the so-call "gold initiative" referendum (aka "Save Our Swiss Gold") in Switzerland on Nov-30 is seen as potentially bearish for EUR-CHF. A 'yes' outcome would require the SNB to raise the percentage of gold reserves to 20% of the total from 8%, which SNB's Danthine has argued "would severely constrain the SNB's room for manoeuvre in a future crisis." Jordan also repeated teh SNB's case against it.

    [USD, CAD]
    USD-CAD corrected to the 1.13s after making a new major-trend high at 1.1467 last Wednesday. Resistance is marked at 1.1370-71 and 1.1480-1.1500, support is at 1.1300. We still expect further greenback gains as the risk of continued soft oil prices will be a relative downer for the Canadian dollar.

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