Home > XE Currency Blog > XE Market Analysis: Europe - Nov 15, 2013

AD

XE Currency Blog

Topics1367 Posts1387
By XE Market Analysis November 15, 2013 3:11 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 1035
    XE Market Analysis: Europe - Nov 15, 2013

    A risk-on theme prevailed, which saw the yen underperform and the Australian dollar and other growth correlating, high-beta currency types outperform. Fresh dovish-talk from the Fed chairman-elect Yellen was the prime factor, who said yesterday during testimony that, "I consider it imperative that we do what we can to promote a very strong recovery." This propelled the MSCI Asia Pacific index to a near 1.5% advance. Contributing to the backdrop of buoyant risk were media reports that Chinese policymakers will be detailing reforms over the next seven to 10 days, offsetting disappointment earlier this week concerning premature expectations of this following a plenum of government members.

    [EUR, USD]
    EUR-USD rose modestly during early Friday trade. The week's high of 1.3497 is targeted, and above there the 1.3530 20-day moving average. Trendline support is marked at 1.3445. The European calendar is highlighted by final Eurozone inflation data for October. We expect Eurozone HICP to be confirmed at 0.7% y/y (median same). The low rate has raised deflation concerns and already prompted last week's rate cut with Praet saying this week that the ECB will combat low inflation, although Weidmann stressed that the central bank doesn't see real deflation. French business confidence and Italian trade numbers are also due.

    [USD, JPY]
    USD-JPY surged to a two-month high at 100.22, encountering some resistance above the 100.00 level which caused some tapering in upside momentum following a strong rally that was seen on Thursday. The Sep-11 peak is at 100.30, which is a four-month high. EUR-JPY logged a two-week peak of 134.93.

    [GBP, USD]
    GBP has remained well supported following the strong labour market data and upwardly revised BoE forecasts of U.K. GDP, which were announced earlier in the week. Markets are bringing forward the expectation for the eventual raising of the repo rate from its prevailing record low of 0.5% (in place since March 2009). We expect this expectation will settle around Q1 2015, having been Q2-Q3 of the same year at the start of this week. We expect incoming survey data for November will continue to affirm a picture of economic revival in the U.K. Cable's long-term trend high of 1.6260 looks a good medium-target. Nearer term, trend support comes in at 1.6050-55, ahead of the 1.6000 level. Resistance can be expected into 1.6100-1.6110, which encompasses the high seen on Thursday. Next domestic focus comes with the CBI industrial trends survey, next Tuesday, and the release of the BoE MPC minutes to the early November policy meeting, due Wednesday. We expect both to be net-supportive for sterling.

    [USD, CHF]
    The CHF has been weakening versus both the EUR and USD, as should be expected during periods of risk-on, the current bout of which has been fuelled by dovish remarks by U.S. Fed Chairperson-elect, Yellen. This will be good news for Swiss policymakers given the renewed drop in CPI and PPI numbers into negative territory, developments which in themselves will maintain the SNB's commitment for ultra-loose monetary policy and its currency cap. EUR-CHF resistance is marked at 1.2360 and 1.2375 (the Oct-15 high). Trend support, which has been establishing during the recovery from the late-September lows, comes in at 1.2325. We'll need to seen risk appetite hold up if EUR-CHF is to recovery the 1.2400 handle. Bullish prospects for USD-CHF seem good given the Fed's renewed commitment to dovish policy. We look for a recovery to the 0.9250 area.

    [USD, CAD]
    The USD-CAD path has been somewhat choppy in recent sessions, with three separate forays above 1.0500 over the last week having squashed upside impetus in market direction. The CAD is benefitting from the broader revival in risk appetite following the dovish remarks by U.S. Fed chairperson-elect Yellen. Directional risks now appear greater to the downside. The 1.0440 levels offers both a near-term target and support (marking Thursday's low), with 1.0400 looking a reasonable target. Resistance is marked at 1.4475. On the Canadian calendar today is manufacturing shipments, which has us projecting a rise of 0.7% in September (median +0.3%) after the 0.2% drop in August, which would provide further assurance that the Canadian economy is making headway. October existing home sales should also reveal sustained strength after rising 18.2% y/y in September.

    Paste link in email or IM