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By XE Market Analysis October 8, 2014 2:35 am
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    XE Market Analysis: Europe - Oct 08, 2014

    The dollar is slightly firmer, on net, against most other currencies since the London close yesterday. EUR-USD is trading near 1.2630, and USD-JPY neat 108.45 after recovering from an early-Tokyo dip to 107.75. AUD-USD reverse a good portion of the gain seen yesterday in ebbing back to the 0.8755 area., aided by news that the Australian Bureau of Statistics said that July and August jobs data were going to be revised (the August release had shown a 121k seasonally adjusted rise in employment, which many economists viewed as implausible)..

    [EUR, USD]
    EUR-USD recovered the 1.2600 handle amid a sense that downside potential has become exhausted for now in a market that has build up an extreme net short exposure to the euro. Eurozone data so far this week have been bad, such as yesterday's much weaker than expected 4% m/m decline in German industrial production, and yet the euro has managed to hold up. Key resistance is marked at 1.2695-1.2600, a test of which would have 'filled the gap' left by the post-jobs report dive last Friday. Above here, and 1.2698 (Oct-2 peak) is another resistance. On the downside,1.2500 (last Friday's low) is now a big support level, though in the longer view we are looking for an eventual move on the July 2012 low at 1.2042.

    [USD, JPY]
    USD-JPY recovered to the mid-108s after an early-Tokyo dip to 107.75. The move mostly reflected a rebound in the dollar. In the bigger picture, yield and growth differentials between the U.S. and Japan should keep the dollar underpinned against the yen. We see scope for an eventual move to 115.00. BoJ boss Kuroda said last Friday that the central bank is aiming to achieve the 2% inflation as "soon as possible," and that a weak currency won't be problematic so long as it reflects fundamentals.

    [GBP, USD]
    We don't expect much more upside progress for Cable. Last week's U.K. September composite PMI fell a six-month low, and we expect incoming data to show the impact of the stagnating Eurozone economy, which should support BoE MPC member Broadbent's remarks of last week, that the economy is "not ready" for a rate hike. Resistance is marked at 1.6159 (last Friday's high) and 1.6240 (20-day moving average).

    [USD, CHF]
    EUR-CHF is back above 1.2100 after SNB's Jorden said last week that there are additional measures that the central bank could use to enforce the EUR-CHF limit peg at 1.2000. This has put the major-trend low of 1.2044 out of the picture for now. The SNB will find defending the 1.2000 cap a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance.

    [USD, CAD]
    We remain bullish on USD-CAD. Friday's high was eight pips shy of the March major-trend peak at 1.1278, which we have been targeting. Support is marked at 1.1100, while major support is now some way off, at 1.0920-26.

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