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By XE Market Analysis October 10, 2018 3:13 am
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    XE Market Analysis: Europe - Oct 10, 2018

    Sterling has gained on Brexit related news while other currencies have remained directionally challenged, with EUR-USD continuing to play a narrow path around 1.1500 and USD-JPY holding a narrow range around the 113.00 level. Cable managed to eke out a two-week high at 1.3174 and EUR-GBP a near four-month low at 0.8732. The Pound has been bid on a London Times article claiming that 30 Labour party MPs will reportedly back Prime Minister May's Brexit plan, suggesting that there could be enough votes for the plan to pass a parliamentary vote, as this would offset Tory party rebels who are planning to vote against it. Market participants will be looking for signs of confirmation of this. The Irish border backstop issue (to guarantee a free-flowing border in whatever Brexit scenario) also remains unresolved, remaining a major obstacle that the UK and EU need to find a way around. Italy also remains in the spotlight, with the jury remaining out on the credibility of the new coalition government.

    [EUR, USD]
    EUR-USD has continued to gravitate around the 1.1500 level, returning to this level after posting a seven-week low at 1.1432 yesterday. Concerns about Italian budgetary prudence have continued to linger, and we continue to favour EUR-USD's downside given the strong fundamental credentials of the Dollar, which were on display at Friday's release of the U.S. jobs report for September (where detail and back revisions offset a disappointing headline reading). EUR-USD has support at 114.60.

    [USD, JPY]
    USD-JPY has remained entrenched in a narrow range around the 113.00 level, above the nine-session low printed on Monday at 112.82. The recent rise in U.S. over Japan yield differential is providing support for USD-JPY, offsetting safe-haven demand for the Japanese currencies amid a backdrop of fragile investor sentiment in global markets, which are digesting high yields and the threat from trade protectionism. The 10-year U.S. Treasury yield has this week lifted to a fresh seven-year highs above 3.25%.

    [GBP, USD]
    Cable managed to eke out a two-week high at 1.3174 and EUR-GBP a near four-month low at 0.8732. The pound has been bid on a London Times article claiming that 30 Labour party MPs will reportedly back Prime Minister May's Brexit plan, suggesting that there could be enough votes for the plan to pass a parliamentary vote, as this would offset Tory party rebels who are planning to vote against it. Market participants will be looking for signs of confirmation of this. The Irish border backstop issue (to guarantee a free-flowing border in whatever Brexit scenario) also remains unresolved, remaining a major obstacle that the UK and EU need to find a way around.

    [USD, CHF]
    EUR-CHF has rebounded to around the 1.1400 level after yesterday posting an eight-day low at 1.1369. The gain the cross saw last week reflected a pricing-out of safe haven positioning after the Italy's coalition government produced a EU-appeasing budget, although concerns remain. EUR-CHF has resistance at 1.1415-18.

    [USD, CAD]
    USD-CAD has retreated to the lower 1.2900s, correcting from Mondays nine-session high at 1.3010, which had extended the gain seen in the wake of Friday's dual releases of September employment reports out of the U.S. and Canada. The reports were on balance bullish for the pairing (taking into account the strong back revisions to the U.S. report, which offset an underwhelming headline). USD-CAD has support at 1.2885-90, and resistance at 1.2893-95.

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