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By XE Market Analysis November 29, 2017 3:16 am
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    XE Market Analysis: Europe - Nov 29, 2017

    Sterling has been the star performer, with markets responding to a story in the Telegraph newspaper reporting that the UK and the EU have agreed on a financial divorcing settlement, which could be up to GBP 55 bln, according to other sources. Despite a government source saying that "there is, as yet, no settlement" and "negotiations are ongoing," and despite the fact that the Irish border remains a sticking point with Dublin intransigent on its view that there can be no hard customs border between the north and the south, the pound rallied. Cable clocked a two-month high at 1.3407, GBP-JPY forayed in to two-week high terrain while EUR-GBP logged an eight-day low. The other major news item today was North Korea's ICBM launch, and Pyongyang bragging that it could now reach any part of the U.S. mainland. After a two month lull in launches, the action shows that North Korea hasn't been swayed by pressure from either Trump or the China. Markets took the news in their stride, however. Most Asian bourses have gained, while the yen saw only a fleeting and limited bout of haven demand. USD-JPY has settled in the mid 111.0s. EUR-USD lifted modestly, above 1.1650, rebounding from a two-session decline.

    [EUR, USD]
    EUR-USD lifted modestly, above 1.1650, rebounding from a two-session decline. Uncertainties with regard to the scope of Fed tightening ahead and U.S. fiscal policy, should continue to keep the pairing underpinned on dips, 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 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 in the latter part of the week, culminating with the U.S. November jobs report. EUR-USD's technical picture is a bullish one. Trend support comes in at 1.1794-95.

    [USD, JPY]
    USD-JPY has been unfazed by the North Korean missile launch and subsequent bragging by Pyongyang of having the capability to reach any part of the U.S. Asian stock markets have been similarly unperturbed. USD-JPY pair ebbed about 20 pips in the wake of the news, which happened early in the session, before basing and settling around 111.50. AUD-JPY, the forex markets gauge of risk appetite in global markets, fared worse but remained above the lows it saw earlier in the week, while EUR-JPY more than reversed declines. 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]
    Sterling has been the star performer, with markets responding to a story in the Telegraph newspaper reporting that the UK and the EU have agreed on a financial divorcing settlement, which could be up to GBP 55 bln, according to other sources. Despite a government source saying that "there is, as yet, no settlement" and "negotiations are ongoing," and despite the fact that the Irish border remains a sticking point with Dublin intransigent on its view that there can be no hard customs border between the north and the south, the pound rallied. Cable clocked a two-month high at 1.3407, GBP-JPY forayed in to two-week high terrain while EUR-GBP logged an eight-day low.

    [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 an eight-day high of 1.2825. 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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