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By XE Market Analysis November 27, 2018 3:36 am
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    XE Market Analysis: Europe - Nov 27, 2018

    Sterling has come under pressure ahead of the London interbank open, with Cable having pegged a five-session low at 1.2769 and EUR-GBP rising to three-session highs. Some are blaming Trump's remarks yesterday about the UK not being able to negotiate a trade deal with the U.S. under the Brexit deal, which is true as the backstop arrangement for Irish land border means that the UK will remain in the customs union, at least until such time that "facilitative arrangements and technologies" could be used on the border. Other narratives point to the likelihood of the deal not passing in UK's parliament, with Prime Minister May estimated to be short of 60 votes to get the deal over the line. There is also the reality-check that the deal will be sub-optimal for the economy compared to remaining in the EU. Outside the case of Cable, most Dollar pairings have been making time comfortably within ranges seen yesterday, although EUR-USD managed to edge out an 11-day low of 1.1323. USD-JPY has settled around 113.50 after printing a 12-day high at 113.65 yesterday. Most Yen crosses have seen a similar price action, remaining generally buoyed but off yesterday's highs and remaining so far today in narrow ranges. Japan's Nikkei 225 closed 0.64% higher in what has been a mixed session on Asian bourses, with Chinese stocks again underperforming, despite a solid rebound on Wall Street. Markets are looking ahead to Friday's Trump-Xi meeting.

    [EUR, USD]
    EUR-USD has ebbed to an 11-day low at 1.1315. We still see EUR-USD as being in the bear trend that's been in play since April, although downside momentum has been waning in recent weeks, aid by the Fed signalling a pause in its tightening cycle from next spring. Signs of flagging growth momentum in the Eurozone (the latest being last Friday's release of flash estimates of the November PMI surveys) and a back-and-forth process between Brussels and Rome over the budget planning of Italy's populist government remain negatives for the Euro, however. Brexit also remains a wildcard risk. The EU-27 voted in favour of the Brexit plan agreed between the UK government and Brussels but it remains highly uncertain whether it will pas in Britain's parliament, and markets continue to factor in a risk of there being a lose-lose no-deal Brexit scenario (which we think very unlikely as most members of parliament are staunchly against this).

    [USD, JPY]
    USD-JPY has settled around 113.50 after printing a 12-day high at 113.65 yesterday. Most Yen crosses have seen a similar price action, remaining generally buoyed but off yesterday's highs and remaining so far today in narrow ranges. Japan's Nikkei 225 closed 0.64% higher in what has been a mixed session on Asian bourses, with Chinese stocks again underperforming, despite a solid rebound on Wall Street, where the S&P 500 closed 1.55% for the better. Markets are looking ahead to Friday's Trump-Xi meeting, though the former said on Monday that he is highly unlikely he will delay trade tariffs on China (with the tariff rate set to jump to 25% on $200 bln worth of Chinese goods imports in January) while threatening to put tariffs on a further $267 bln worth of Chinese imports. USD-JPY's fundamentals (yield differentials and the associated contrast between Fed and BoJ policy paths) remain supportive, though periodic episodes of risk aversion have been an intermittent offsetting bearish force. USD-JPY has resistance at 113.74-75, and support at 113.34-35.

    [GBP, USD]
    Sterling has come under pressure ahead of the London interbank open, with Cable having pegged a five-session low at 1.2769 and EUR-GBP rising to three-session highs. Some are blaming Trump's remarks yesterday about the UK not being able to negotiate a trade deal with the U.S. under the Brexit deal, which is true as the backstop arrangement for Irish land border means that the UK will remain in the customs union, at least until such time that "facilitative arrangements and technologies" could be used on the border. Other narratives point to the likelihood of the deal not passing in UK's parliament, with Prime Minister May estimated to be short of 60 votes to get the deal over the line. There is also the reality-check that the deal will be sub-optimal for the economy compared to remaining in the EU.

    [USD, CHF]
    EUR-CHF has recouped to the lower 1.1300s steadied after dropping sharply to a two-month low at 1.1297 last week. A renewed spike in Italian yields amid ongoing wrangling between Roma and Brussels about Italy's budget had weighed on the common currency lately, reviving the Franc as a safe-haven currency. There has also been signs of flagging economic growth momentum in the Eurozone. EUR-USD has support at 1.1300-05.

    [USD, CAD]
    USD-CAD edged out a six-day high of 1.3266, nearing Friday's low at 1.3186. A broader revival in risk appetite in global markets have helped the Canadian currency and other Dollar bloc currencies find a footing. The 20%-plus plunge in oil prices over the last month, however, should ensure that the keeping the BoC on hold at its December-5 policy meeting, and this backdrop should keep the Loonie a sell-on-gains trade. The Canadian data calendar this week brings Q3 GDP, due Friday, which we expect to slow 2.0% q/q growth, down from 2.9% in Q2. USD-CAD has support at 1.3163-65, and resistance at 1.3236-40.

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