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By XE Market Analysis November 14, 2014 2:56 am
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    XE Market Analysis: Europe - Nov 14, 2014

    The dollar posted gains across the board, led by USD-JPY and Cable, with the former punching out a fresh six-year peak of 116.29 and the latter trading below 1.5700 for the first time since September 2013. EUR-USD, meanwhile, drifted lower and posted an intraday low at 1.2426, still remaining within the rough 1.2400-1.2500 range that's persisted all week. A better than expected 0.3% q/q rise in the flash estimate of French Q3 GDP helped support the euro, while German Q3 GDP came as expected at +0.1%, which will be a relief for some as a negative print was avoided. Although U.S. Treasury yields dipped yesterday, the dollar's broad advance has been concomitant with a perking up in the currency's yield advantage, with the differential versus the euro at the 10-year maturity level having pushed out above 155 bp, for instance, and the equivalent spread against the yen pushing back toward the 190 bp mark. The AUD came under some particular pressure on news that Glencore, the world's biggest thermal coal miner, is planning to close a number of mines in Australia in December due to global oversupply.

    [EUR, USD]
    EUR-USD drifted lower, posting a low at 1.2426, still remaining within the rough 1.2400-1.2500 range that's persisted all week. A better than expected 0.3% q/q rise in the flash estimate of French Q3 GDP helped support the euro, while German Q3 GDP came as expected at +0.1%, which will be a relief for some as a negative print was avoided. However, and although U.S. Treasury yields dipped yesterday, the dollar's broad advance has been concomitant with a perking up in the currency's yield advantage, with the differential versus the euro at the 10-year maturity level having pushed out above 155 bp. 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. The ECB will also start buying ABS next week, and looks headed to widen the scope of asset purchases to include corporate bonds. Initial EUR-USD resistance is marked at 1.2500-1.2509, support at 1.2394-1.2400.

    [USD, JPY]
    USD-JPY punched out a fresh six-year peak of 116.29 as the dollar's yield advantage pushed back toward recent highs at 190 bp at the 10-year level between in the U.S. T-note and JGB. There continues to be a flood of Japanese policymaker speak, which is generally sending the message the QQE isn't risking hyper-inflation down the track, that Japanese PM Ane is likely to announced a delay in the second scheduled hike in the sales tax, which may be accompanied by fresh stimulus and, possibly, a snap election in December. 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]
    Sterling drifted to fresh lows, with Cable making a new 13-month low at 1.5654 and EUR-GBP reaching new three-week highs above 0.7900. This extends 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. BoE's Broadbent subsequently said that disinflationary trends will persist for a while. We anticipate more of the same as we see U.K.'s recovery pace will continue to be eroded by economic stagnation across the Channel and slowing in some key emerging economies. Resistance is at 1.5694-5700, support at 1.5650. We anticipate a move on 1.5500.

    [USD, CHF]
    EUR-CHF remains heavy, seeing little bounce after making a fresh 26-month low at 1.2016 yesterday. That was the eleventh consecutive day the franc has edged out a fresh high against the euro. The threat of SNB intervention remains high given the nearing proximity of the franc's cap at 1.2000. The SNB's resolve in defending it can be expected to be resolute. President Jordan said in a press interview this week 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 as the SNB have argued it "would severely constrain the SNB's room for manoeuvre in a future crisis."

    [USD, CAD]
    USD-CAD recovered to upper 1.13s, bringing the major-trend high at 1.1467 back into scope. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1298-1.1300. We 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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