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By XE Market Analysis October 10, 2014 3:38 am
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    XE Market Analysis: Europe - Oct 10, 2014

    The dollar has consolidated Thursday's rebound as the market returns focus to this week's slew of soft economic data on the European side of the pond. EUR-USD has been oscillating in a narrow range on either side of 1.2700 after failing to sustain yesterday's brief gain above the 20-day moving average, which is presently sitting at 1.2750, and nearly a big figure down on the rebound high of 1.2791. Cable followed suit, with the pound hovering in the low 1.61s. News that UKIP, the right wing, anti-EU protest party won its first parliamentary seat in a by-election has generated lots of headlines in the U.K. and other media, but hasn't and shouldn't have market impact, although the advance of UKIP has been causing the main parties to rethink some policies, particularly on immigration. USD-JPY has held in about a 30 pip range in the upped 107s, remaining well within Thursday's trading bounds. The BoJ's minutes to the September policy meeting found most members remaining committed to QE to achieve the 2% target. CPI excluding the impact of this April's sales tax hike is presently running at 1.1%.

    [EUR, USD]
    EUR-USD failed to sustain yesterday's brief gain above the 20-day moving average, which is presently sitting at 1.2750, and is nearly a big figure down on the rebound high of 1.2791. Despite the dovish-leaning FOMC minutes this week, recent data shows that the fundamental picture is still one of sufficiently divergent paths between the U.S. and Eurozone economies to maintain the overall EUR-USD bear trend. Support comes in at 1.2664 (Thursday's low), and resistance at .2716-20, 1.2750 (20-day moving average) and 1.2800-1.2816.

    [USD, JPY]
    USD-JPY has held in about a 30 pip range in the upped 107s, remaining well within Thursday's trading bounds. The BoJ's minutes to the September policy meeting found most members remaining committed to QE to achieve the 2% target. CPI excluding the impact of this April's sales tax hike is presently running at 1.1%. We think 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. Support is marked at 107.50-55, while we look at 106.80-107.09 as a key support area. BoJ boss Kuroda said last week 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 expect Cable to head lower, back to the 1.6000 area. U.K. data this week showed fresh signs of slowing recovery pace with the September RICS house price balance came in at +30%, down on the Reuters median for 36%, while the BCC's quarterly economic survey showed the slowest export growth in nearly two years. This follows last week's U.K. September PMI release, which showed the composite reading to have fallen to a six-month low. We expect incoming data will continue 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 1.6135, ahead of 1.6200 and 1.6220-30 (which encompasses the 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. Last 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 1.1071 (Oct-2 low) and 1.1000. Major support is now some way off, at 1.0920-26.

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