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By XE Market Analysis November 13, 2014 3:25 am
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    XE Market Analysis: Europe - Nov 13, 2014

    The AUD took a dive on an RBA intervention threat from assistant governor Kent, who said that the central bank "hasn't ruled out intervention" while repeating the RBA's view that the currency remains fundamentally overvalued relative to falling resource prices. AUD-USD dove from the 0.8734 area to session lows of 0.8672, subsequently recovering to the 0.8700-10 area. Most of the other main currencies posted narrow ranges. EUR-USD drifted in a narrow range around 1.2440-50, holding well within the approximate 1.2400-1.2500 range that's developed over the last four trading days. USD-JPY consolidated in the mid-to-upper 115s, keeping Monday's 116.10 six-year high in range. There was another flood of Japanese policymaker speak, which generally sent the message the QQE isn't risking hyper-inflation down the track, and that the recovery is on track, which helped fuel another solid rally in the Nikkei. GBP was unaffected by BoE-speak from Carney, who said the economy is normalizing, and Broadbent, who said disinflationary trends will persist for a while, especially if commodity prices remain low.

    [EUR, USD]
    EUR-USD drifted in a narrow range around 1.2440-50, holding well within the approximate 1.2400-1.2500 range that's developed over the last four trading days. 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. ECB's Mersch 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. Nearer-term EUR-USD resistance is marked at 1.2500-1.2509.

    [USD, JPY]
    USD-JPY consolidated in the mid-to-upper 115s, keeping Monday's 116.10 six-year high in range. There was another flood of Japanese policymaker speak, which generally sent the message the QQE isn't risking hyper-inflation down the track, and that the recovery is on track, which helped fuel another solid rally in the Nikkei. Our long-standing USD-JPY 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, and expect an eventual move on 120.00.

    [GBP, USD]
    Cable edged out a fresh 13-month low at 1.5760, extending the decline that was set in motion by the release of the November BoE Quarterly Inflation Report on Wednesday, which trimmed both GDP and inflation forecasts and noted that CPI is likely to fall below 1% over the next six months. Subsequent BoE-speak maintained downside pressure on sterling, on net, with Broadbent saying that disinflationary trends will persist for a while, especially if commodity prices remain low, while Governor Carney said the economy is in prcess of normalizing. 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 1.5790 (Nov-7 low), and 1.5835, support at 1.5750-60.

    [USD, CHF]
    EUR-CHF remains heavy, seeing little bounce after making a fresh 26-month low at 1.2018 yesterday. The threat of SNB intervention remains high given the close proxiity of the franc's cap at 1.2000. The SNB's resolve can be expected to be resolute. President Jordan said in a press interview today that the cap will remain in place for the "foreseeable" future as it is "essential" for preventing deflation. Jordan also said last month that negative interest rates could be deployed as an extra defence if need be. The franc hasn't seen the south side of 1.2000 since the cap was implemented in Sept 2011. Euro weakness and bouts of risk aversion have been weighing on EUR-CHF recently, while the approach of the so-call "gold initiative" referendum 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 has also stressed the SNB's disdain of the idea.

    [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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