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By XE Market Analysis November 23, 2017 3:03 am
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    XE Market Analysis: Europe - Nov 23, 2017

    The dollar has remained on a downward path. USD-JPY extended the sharp decline of yesterday, logging a two-month low of 111.06 in a thin Asia-Pacific session, lacking Tokyo participation due to Japan's version of thanksgiving, before settling around the 111.30 mark. EUR-USD logged an eight-day high of 1.1839 while the USD index (DXY) concomitantly fell to a one-month low. The buck's weakness follows soft initial claims and durable orders data out of the U.S. yesterday, which were followed up by the minutes to the recent Fed meeting saying that "with core inflation readings continuing to surprise to the downside...many participants observed that there was some likelihood that inflation might remain below 2% for longer than they currently expected." While the minutes still left the path clear for a 25 bp rate hike at the upcoming December FOMC, the minutes and persisting backdrop of benign inflation has left markets questioning the potential for further tightening in 2018, which is seeing forex markets adjust positioning accordingly. More of the same seems likely for now. U.S. markets are absent today, and conditions will remain relatively thin until next week now.

    [EUR, USD]
    EUR-USD logged an eight-day high of 1.1839, with the pair rising on the back of broad dollar weakness following soft data out of the U.S. yesterday, which was followed up by the minutes to the recent Fed policy meeting highlighting policymaker concern about the persistence of benign inflationary readings. With incoming data, including today's preliminary readings of the November PMI surveys, likely to affirm the Eurozone economy is continuing to gather recovery momentum, we anticipate more upside progress in EUR-USD. EUR-USD has resistance at 1.1861 (the November-15 high) and 1.1878-80 (which encompasses the October highs). A break and close above these levels would swing the scopes back on the 1.2000 level. Support is at 1.1810-13.

    [USD, JPY]
    USD-JPY extended the sharp decline of yesterday, logging a two-month low of 111.06 in a thin Asia-Pacific session, lacking Tokyo participation due to Japan's version of thanksgiving. The move was largely driven by broader dollar weakness, which has been in play following soft initial claims and durable orders data yesterday, which was followed up by the minutes to the recent Fed meeting saying that "with core inflation readings continuing to surprise to the downside...many participants observed that there was some likelihood that inflation might remain below 2% for longer than they currently expected." USD-JPY's price action reaffirms the bearish trend that's been in evolution since early November. The September low at 110.83 provides the next downside waypoint. Near-to resistance is at 111.36-37.

    [GBP, USD]
    Cable has coat-tailed EUR-USD higher while simultaneously losing ground to the euro and yen, reflecting broad dollar weakness on the one hand, and a bearish pound sentiment on the other following notable downgrades in official UK growth projections yesterday. Cable lifted out of a 1.3212 low yesterday to a peak today of 1.3336. At the same time, EUR-GBP has lifted to a two-day peak at 0.8891, with today marking the first session out of the last six where the pound has declined versus the common currency. Both the UK government's fiscal budget was, in the aggregate view, and the OBR's growth downgrade were near expectations, so the overall market impact has been correspondingly restrained. An FT report yesterday attested that the EU and UK have a breakthrough in the works with regard to agreeing on Brexit divorcing terms has, meanwhile, been a positive. The pound has been broadly holding its own versus the major currencies over the last month or two, and we expect this to remain the case for now, though we still see the balance of risks being skewed to the downside.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.16s having recouped from Monday's swift dive to a 1.1591 low, which was seen as markets reacted to the news that talks to form a coalition government in Germany had collapsed. The cross had posted a 34-month high at 1.1723 on Friday, though with political uncertainties now prevailing in Germany (where new elections may not happen until next March), we expect EUR-CHF to trend sideways, with risks tilted to the downside for now. Key support is at 1.1542-45.

    [USD, CAD]
    USD-CAD punched out a 10-day low at 1.2693 and has since remained heavy. The dynamic reflects broader weakness in the U.S. dollar as markets draw in expectations about the scope of the Fed tightening cycle in 2018. This has helped balance, from the perspective of the USD-CAD pairing, BoC policymaker guidance over the last month that it is in no rush to continue with its gradual tightening cycle. Resistance is at 1.2730-32, and support is at 1.2678-80.

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