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By XE Market Analysis November 19, 2014 3:03 am
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    XE Market Analysis: Europe - Nov 19, 2014

    Another day, another seven-year high in USD-JPY which rallied to a new peak of 117.41 after punching through yesterday's 117.06 peak in Tokyo. The BoJ maintained its ultra easing posture at the conclusion of its policy meeting today, as widely expected following the surprise stimulus in October -- but the Board voted 8-1 in favour of the decision this time compared to the 5-4 tally in October. The minutes also indicated potential for prolonged low-inflation in Europe is a risk. The yen also posted a new six-year low against the euro. Elsewhere, EUR-USD trod a narrow range in the low 1.25s, marginally below yesterday's London's closing level. The dollar was firmer against most other currencies, with Cable, AUD-USD and NZD-USD all breaching their respective previous-day lows. AUD-USD logged a five-day low at 0.8655. Fresh losses in iron ore futures in China seemed to weigh on the Aussie. Iron ore, prices of which are down by some 44% year-to-date, accounts for about a third of Australia's terms of trade calculation.

    [EUR, USD]
    Both the euro and the dollar have been quite well bid against not just the underperforming yen, making seven- and six-year highs respectively, but also versus other currencies. This has consequently left EUR-USD trading a narrow range in the low 1.25s, marginally below yesterday's London's closing level. The euro has found a bid following a much stronger than expected German ZEW investor confidence on Tuesday, while ECB boss Draghi said earlier in the week that no additional easing is likely as the impact of existing measures has yet to take effect. Today's FOMC minutes will be a big focus for markets, and may return favour to the dollar should we see a hawkish-leaning tone. EUR-USD resistance is at 1.2555 and 1.2577-80, support at 1.2443-50.

    [USD, JPY]
    Another day, another seven-year high in USD-JPY which rallied to a new peak of 117.41 after punching through yesterday's 117.06 peak in Tokyo. The BoJ maintained its ultra easing posture at the conclusion of its policy meeting today, as widely expected following the surprise stimulus in October -- but the Board voted 8-1 in favour of the decision this time compared to the 5-4 tally in October. The minutes also indicated potential for prolonged low-inflation in Europe is a risk. The yen also posted a new six-year low against the euro. Japanese PM Abe announced on Wednesday a postponement in a scheduled sales tax hike while calling for a snap election. The planned rise in the nation's sales tax to 10% from 8% (having been lifted from 5% in April) will be delayed until April 2017. Parliament will be dissolved on Nov-2, even though an election is not necessary until 2016. Abe is looking to lock in a fresh mandate for his "Abenomics" strategy -- which is yen bearish, of course -- while his ratings are relatively high and before tackling unpopular policies next year. We expect divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY, anticipating move on 120.00.

    [GBP, USD]
    We anticipate there is more to come in sterling's bear trend against the dollar 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 1.5650, 1.5679-80, 1.5735-40, support at 1.5593-1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF has continued its slow-motion grind lower after clocking a fresh major-trend low at 1.2009 on Monday, which was the fourteenth consecutive day the franc has edged out a fresh high against the euro. The threat of SNB intervention is high given the nearing proximity of the franc's cap at 1.2000. The SNB's resolve in any defence can be expected to be resolute. President Jordan said last 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 implemented 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 "Save our Swiss Gold" referendum in Switzerland on Nov-30 is seen as potentially bearish for EUR-CHF. Jordan repeated in a press interview this week the SNB's view that a "yes" vote would curtail the central bank's ability to defend the franc's cap, which is "currently our main policy tool."

    [USD, CAD]
    USD-CAD lifted back above the 1.13 handle. We continue to expect a challenge on the major-trend high at 1.1467 on the back of U.S. dollar strength. The likelihood for continued soft oil prices is relative downer for the Canadian dollar, too. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1260-65-1.1250.

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