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By XE Market Analysis November 28, 2017 3:14 am
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    XE Market Analysis: Europe - Nov 28, 2017

    The dollar has lifted moderately in cautious trading as key data releases from the major economies loom on the near-horizon and with uncertainties prevailing with regard to the scope of Fed tightening ahead and U.S. fiscal policy, and on the political front in Germany and Catalonia, along with the risk for the Irish border to become a major sticking point in the Brexit negotiation. USD-JPY recovered from the two-month low seen late yesterday at 110.83, which followed a bout of safe haven demand for the yen on reports that North Korea was prepping another test of a ICBM. The pair settled around 111.20-30. BoJ member Kataoka said today that the central bank needs to take additional easing steps as inflation is set to undershoot the 2% target through to the fiscal year of 2019, remarks which helped the yen come off the boil. EUR-USD carved out a two-session low of 1.1885, building on the correction from the two-month high seen yesterday at 1.1961. USD-CAD lifted to a one-week high of 1.2771. Cable is also modestly softer. The BoE has released stress test results of the banking sector as part of its latest financial stability report, using its conclusions to demand an extra GBP 6 bln buffer from banks while calling for the UK and EU to introduce new legislation to avoid a post-Brexit crisis in derivatives and insurance markets.

    [EUR, USD]
    EUR-USD carved out a two-session low of 1.1885, building on the correction from the two-month high seen yesterday at 1.1961. Uncertainties with regard to the scope of Fed tightening ahead and U.S. fiscal policy, should continue to keep the pairing underpinned on dips, however, along with a run of encouraging data out of the Eurozone over the last week or so, and signs that a grand coalition government has a chance of forming in Germany, which would avoid the need for new elections and half reduce uncertainty. There have also been polls suggesting that pro-Spain parties in Catalonia have at least as much support as pro-independence parties (regional elections take place there next month). Market participants will now look to key data are due on both sides of the Atlantic this week. EUR-USD's technical picture is a bullish one. Support is at 1.1878-80, which was a former resistance level, marked by the October highs. The break and close above here has swung the scopes back on the 1.2000 level.

    [USD, JPY]
    USD-JPY recovered from a two-month low of 110.83, seen amid a bout of safe haven demand for the yen on reports that North Korea was prepping another test of a ICBM. The pair settled around 111.20-30. BoJ member Kataoka said that the central bank needs to take additional easing steps as inflation is set to undershoot the 2% target through to the fiscal year of 2019, remarks which helped the yen come off the boil. EUR-JPY and other yen crosses saw a similar price action today. We still take a bearish view of USD-JPY, with price action over the last week having reaffirmed the bearish trend that's been in evolution since early November. The September low at 110.83 provides the next downside waypoint. Resistance is at 111.77-80.

    [GBP, USD]
    The pound drifted lower after yesterday clocking a two-month high versus the dollar at 1.3383, which was largely a product of a weaker dollar as markets adjusting to a less certain pace of Fed tightening ahead, along with fiscal policy uncertainties. Cable's price action marks a break of the sideways range that's been in play since early October, though market gossip of good selling interest into 1.3400 seems to have encouraged some squaring out by shorter-term focused speculative players. The pair subsequently ebbed back under 1.3350. The failure to close above 1.3340 yesterday takes some of the technical significance out of the rally yesterday. UK data this week is loaded in the mid-to-latter part of the week, while there is a risk that the Brexit negotiation process will get tangled up by the Irish border issue, with Dublin threatening to use its veto in response to any proposal for a hard customs border. The BoE today released stress test results of the banking sector as part of its latest financial stability report, using its conclusions to demand an extra GBP 6 bln buffer from banks while calling for the UK and EU to introduce new legislation to avoid a post-Brexit crisis in derivatives and insurance markets.

    [USD, CHF]
    EUR-CHF has settled near 1.1700 having lifted from tests below 1.1600 last week. Data affirming that economic growth momentum continues to build in the Eurozone, along with hopes that a grand coalition government will form in Germany, have given the euro a prop. The 34-month high at 1.1723, initially posted on November 17, was retested yesterday. Support is at 1.1617-30. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we continue to anticipate EUR-CHF will make an eventual return to 1.2000, which is the former trading floor of the SNB.

    [USD, CAD]
    USD-CAD lifted to a one-week high of 1.2776. A rebound in the U.S. dollar and a backdrop of correcting oil prices, after seeing 28-month highs, have helped give the pairing an underpinning. BoC policymaker guidance over the last month or so has also been emphasizing that there is no rush to continue with its gradual tightening cycle. Former USD-CAD resistance at 1.2747-50 now reverts as a support. The November-21 high at 1.2837 provides the next upside target.

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