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By XE Market Analysis November 28, 2018 3:37 am
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    XE Market Analysis: Europe - Nov 28, 2018

    Yen softness has been the main theme so far today, with most Dollar pairings remaining in narrow ranges and comfortably within yesterday's ranges. EUR-USD has retained a heavy tone, ebbing back under 1.1300, though remaining above the two-week low posted yesterday at 1.1277, which was seen after Trump threatened to a blanket rise in car import tariffs to the U.S. USD-JPY has traded firmer, concomitantly with rise in global stock markets, with the pair posting a two-week high at 113.90. AUD-JPY and other Yen crosses have also lifted. The main Chinese share indexes have gained over 1% while S&P 500 futures are up in overnight trading, extending the 0.3% gain seen in regular trading on Wall Street yesterday. The Trump administration's economic advisor said there is scope for a possible "breakthrough" in U.S.-China trade relations at the dinner meeting scheduled on Friday between Trump and Xi, while the Chinese ambassador to the U.S. said in an interview with Reuters that Beijing will not use U.S. Treasuries as a trade weapon. These helped lift sentiment, though markets could be set for some heightened volatility should Trump and Xi fail to deliver. Sterling has managed to recover some of yesterday's declines, though it remains highly uncertain, if not unlikely, that the Brexit deal will pass in parliament. The vote is pencilled in for December 12. Cable has recouped above 1.2750 from yesterday's two-week low at 1.2725.

    [EUR, USD]
    EUR-USD has retained a heavy tone, ebbing back under 1.1300, though remaining above the two-week low posted yesterday at 1.1277, which was seen after Trump threatened to a blanket rise in car import tariffs to the U.S. We view EUR-USD as remaining in the big-picture bear trend that's been in play since April, although downside momentum has been waning in recent weeks, aided 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, with Brexit also presenting risks.

    [USD, JPY]
    USD-JPY has traded firmer concomitantly with rise in global stock markets, with the pair posting a two-week high at 113.90. AUD-JPY and other Yen crosses have also lifted. The main Chinese share indexes have gained over 1% while S&P 500 futures are up in overnight trading, extending the 0.3% gain seen in regular trading on Wall Street yesterday. The Trump administration's economic advisor said there is scope for a possible "breakthrough" in U.S.-China trade relations at the dinner meeting scheduled on Friday between Trump and Xi, while the Chinese ambassador to the U.S. said in an interview with Reuters that Beijing will not use U.S. Treasuries as a trade weapon. 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 114.00, and support at 113.34-35.

    [GBP, USD]
    Cable has recouped above 1.2750 from yesterday's two-week low at 1.2725 with the pound has managing to recover some of yesterday's declines, although it remains highly uncertain, if not unlikely, that the Brexit deal will pass in parliament. The vote is pencilled in for December 12. Northern Ireland's DUP, to which PM May's Tory party depends on to operate as a minority government, yesterday reaffirmed that it "cannot support" the deal, and the Labour party, which is the principal opposition, is also shaping up to be against it. Three days after the EU-27 approved the deal, and two weeks ahead of the expected date for Britain's parliament to vote on it, Prime Minister May looks to be short of 60 votes to get the deal over the line. While a no-deal crash-out scenario is unlikely, the risk is that political turmoil will persist in the event that parliament votes May's deal down. There is a report that EU lawyers have informed the ECJ (European Court of Justice) that the UK's decision to leave the EU cannot be unilaterally revoked, which is a blow to Europhile campaigners angling for a second referendum with the hope of remaining in the bloc. Cable has support at 1.2696-1.2700, which encompasses the four-month lows seen in late October.

    [USD, CHF]
    EUR-CHF has drifted to two-month low territory under 1.1280. Signs of flagging growth momentum in the Eurozone along with volatility in Italian yields amid ongoing wrangling between Roma and Brussels about Italy's budget have been weighing on the common currency lately. EUR-CHF has support at 1.1260, and resistance at 1.1300-03.

    [USD, CAD]
    USD-CAD has lifted to five-month highs above 1.3325. The 20%-plus plunge in oil prices over the last month has ensured that the BoC will be on hold at its December-5 policy meeting, and this has been keeping 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. The 17-month high seen in June at 1.3387 provides an upside waypoint for USD-CAD. Support comes in at 1.3275-77.

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