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By XE Market Analysis November 24, 2014 3:10 am
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    XE Market Analysis: Europe - Nov 24, 2014

    The dollar majors have generally seen narrow ranges in early week trade in low-liquidity conditions in the absence of Japanese markets, which were closed due to a public holiday. EUR-USD did, however, dip to a low of 1.2362 before recovering toward the 1.2400 level, near net-unchanged from Friday's closing level. The move left the Nov-6 trend low at 1.2358 unchallenged. ECB's Constanzio said that the Eurozone is not at risk of sliding into "full deflation," though the inflation rate is "dangerously" low. EUR-CHF traded slightly firmer, lifting to the 1.2025-30 area, after SNB's Jordan repeated his opposition to gold initiative, arguing once again that it would impede the central bank's ability to defend the 1.2000 franc cap. USD-JPY traded fractionally firmer, though dipped back to the 117.85 area after stalling at 118.00. Reuters reported that China was ready to cut interest rates again, according to an unnamed economists at a government think-tank, due to concerns about the threat of deflation. That, in the wake of last Friday's surprise rate cut, gave stocks in Asia a boost and helped lift the AUD, which rose to 0.8700 against the USD, though the Aussie remained shy of Friday's high at 0.8722.

    [EUR, USD]
    EUR-USD did, however, dip to a low of 1.2362 before recovering toward the 1.2400 level, near net-unchanged from Friday's closing level. The move left the Nov-6 trend low at 1.2358 unchallenged. ECB's Constanzio said that the Eurozone is not at risk of sliding into "full deflation," though the inflation rate is "dangerously" low. Support is marked by the Nov-6 low at 1.2358, which is the lowest level traded since August 2012. We look for an eventual move on the July 2012 low at 1.2042 due to diverging Eurozone and U.S. economic growth.

    [USD, JPY]
    USD-JPY traded fractionally firmer, though dipped back to the 117.85 area after stalling at 118.00. Liquidity in Asia was low today in the absence of Japanese markets, which were closed due to a public holiday. PM Abe's rush for a new mandate for Abenomics (elections to be held Dec-14) drove latest drop in the yen, which saw USD-JPY log a seven-year high at 118.96 last Thursday. 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 remain bearish of sterling in the case against the dollar. We see that the 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 1.5687-1.5700, support at 1.5630 and 1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF continues to ply a narrow path marginall above 1.2010 and the SNB's no-go limit of 1.2000. There are market rumours that the SNB has effectively set up a buffer zone by lining up bids from 1.2010 to 1.2000, and Reuters has reported that a sizable bid has been conspicuously placed on EBS at 1.2006. SNB's Zurbruegg pledged that that 1.2000 franc cap will be defended "with utmost determination" as the bank is prepared to buy an unlimited amount of FX and take further measures immediately if needed. News earlier in the week that a poll found that the "Save our Swiss Gold" initiative had only 38% support (referendum will take place on Nov-30) had helped give EUR-CHF a lift as a 'yes' outcome would, by the SNB's argument, jeopardise the defence of the 1.2000 cap. The cross only managed to lift to 1.2026 before sinking back to the SNB's apparent line-in-the-sand at 1.2010, however.

    [USD, CAD]
    USD-CAD has dipped back under 1.1300 with the Loonie trading firmer in the wake of the unexpected PBoC rate cut last week. We continue to expect a challenge on the major-trend high at 1.1467 on the back of U.S. dollar strength, however. The likelihood for continued soft oil prices is also a relative downer for the Canadian dollar. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1260-65-1.1250.

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