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By XE Market Analysis November 13, 2017 3:18 am
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    XE Market Analysis: Europe - Nov 13, 2017

    The dollar has been mixed in early-week trading so far, losing ground to an outperforming dollar while edging higher versus the euro and some other currencies, the pound in particular, which has come under general pressure amid political uncertainty. Most stock markets, outside China, came under pressure in Asia, following Wall Street's lead, where investors are unclear about the scale of tax reform in the U.S. This has generated demand for yen via the inverse correlation that the Japanese currency often displays to global equity market moves (which in turn tends to exacerbate Japanese stock market performance relative to global peers). USD-JPY logged an intraday low of 113.34, drawing in Friday's low at 113.22. EUR-USD, meanwhile, has ebbed back under 1.1650, while Cable is showing a 0.7% loss in dropping to two-session lows under 1.3100.

    [EUR, USD]
    EUR-USD ebbed back under 1.1650, while EUR-JPY came under greater pressure and EUR-GBP, by contrast, lifted amid broader declines in the pound. Markets will continue to monitor the tax reform debate in the U.S., still unclear about the scale, content and timing, which, while the uncertainty persists should limit EUR-USD's downside potential. Support is at 1.1623-25, while, on the upside, key resistance levels are at 1.1687-91 and 1.1700.

    [USD, JPY]
    USD-JPY and yen crosses have traded lower today amid a backdrop of declining stock markets, which is generating demand for yen via the often-seen inverse risk-appetite correlate that the Japanese currency has. Stock markets in Asia traded mostly lower, following Wall Street's lead, where investors are unclear about the scale, timing and content of tax reform in the U.S. USD-JPY logged an intraday low of 113.34, drawing in Friday's low at 113.22. The pair's two-month rally phase has been losing momentum, and a relatively sustained correction looks to be afoot. We expect markets will remain sensitive to the ongoing tax cut debate. For now, the yen is likely to remain in some demand on dips, while the dollar is likely to remain a sell on rallies.

    [GBP, USD]
    Sterling has taken a tumble in early week trading, with markets perturbed by political uncertainty in the UK following weekend reports of an attempted ousting of the embattled PM May. The EU's chief negotiator Barnier also said that the bloc is drawing up contingency plans in the event the Brexit negotiations break down. Cable tumbled by over 0.5% in making two-session lows under 1.3100. While the pairing 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 been relatively settled over the last couple of weeks, trading on either side of the 1.1600 level. The 33-month peak seen in late October at 1.1712 has slipped off the radar screen for now, though, with the Eurozone gathering growth momentum, and seeming to have conquered political existential threats, we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.

    [USD, CAD]
    USD-CAD has settled near 1.2700 after logging a three-week low at 1.2665 last week, which reaffirmed an emergent downward trend. The pair's two-month rally phase from sub-1.2100 levels looks to have stalled over the last week or so. BoC Governor Poloz last 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, and 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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