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By XE Market Analysis October 11, 2017 3:25 am
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    XE Market Analysis: Europe - Oct 11, 2017

    The euro has seen a relief bid after the Catalan leader refrained from calling a unilateral spit from Spain, and chose instead to proceed with dialogue. EUR-USD and EUR-CHF climbed to respective two-week highs of 1.1834 and 1.1534, and EUR-JPY to a 10-day high just shy of 133.00. Elsewhere, USD-JPY clocked a two-week low at 111.99 low yesterday before lifting back to the mid 112.0s as the market unwound the safe haven premium built up in the yen. USD-JPY's low was shy of the pair's 200-day moving average, at 111.88.

    [EUR, USD]
    The euro has seen a relief bid after the Catalan leader refrained from calling a unilateral spit from Spain, and chose instead to proceed with dialogue. EUR-USD and EUR-CHF climbed to respective two-week highs of 1.1834 and 1.1534, and EUR-JPY to a 10-day high just shy of 133.00. EUR-USD has near-term trend support at 1.1779-80, and resistance at 1.1850-55.

    [USD, JPY]
    USD-JPY clocked a two-week low at 111.99 low yesterday before lifting back to the mid 112.0s. The yen had been bid up into the Catalan president's parliamentary address only to fall back after he refrained from calling a unilateral spit from Spain, choosing instead to proceed with dialogue. This saw market unwind the safe haven premium built up in the yen. USD-JPY's low was shy of the pair's 200-day moving average, at 111.88. While the relatively dovish stance of the BoJ versus the Fed has been keeping the pair bid on dips, geopolitical tensions are serving to curtail the upside, and the one-month bullish phase, from the early-September low at 107.31, has been flagging. Momentum indicators, such as the 14-day RSI, have been in 'bearish divergence', where new highs in the underlying market are seen but at the same time as trend momentum declines.

    [GBP, USD]
    Cable has settled in the upper 1.31s after logging a three-session high at 1.3226, which extended the recovery from Friday's one-month low at 1.3027. The pound last week posting seeing its biggest weekly decline since August 2016. Helping foster the turn higher was the ONS stats office disclosing of an error that caused an underestimation of companies' costs data, which has given the BoE rate hike case a boost. Incoming UK data have been mixed, with above-forecast production data being offset by a worse than expected blowout in the trade deficit, and with headline strength in the BRC retail survey for September being offset by the fact that the data was largely inflated by higher prices. We still prefer selling Cable into strength. Support is at 1.3175.

    [USD, CHF]
    EUR-CHF rallied to a two-week high at 1.1534 amid a broader pick-up in the euro after the Catalan leader managed to de-escalate tensions with Madrid by calling for a pursuit of dialogue. Former EUR-CHF resistance at 1.1488-90 and 1.1500 now revert as supports. We expect the franc to remain on a generally softer path. The SNB stated at its quarterly policy review last month that it remained committed to ultra-accommodative monetary policy settings, and that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July.

    [USD, CAD]
    USD-CAD has settled in the low 1.25s after logging a correction low at 1.2483 yesterday. This extended the pullback from Friday's six-week peak at 1.2600. The move has been driven by broader softness in the U.S. dollar, which is been persisting since the open of trading on Monday, though we are anticipating fresh demand on dips at some point. Fed speakers this week should collectively signal that a December rate hike, and more beyond, remains very much on the cards, with the 4.2% cycle low in unemployment and spike in hourly earnings offsetting the hurricane-distorted contraction in the headline of the September jobs report. The Canadian dollar, meanwhile, is likely to remain on a neutral-to-softer bias, in place since BoC Governor Poloz unexpectedly threw cold water on market expectations for further rate hikes in saying that the central bank was not on a predetermined path.

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