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By XE Market Analysis October 15, 2018 3:50 am
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    XE Market Analysis: Europe - Oct 15, 2018

    The Yen has traded moderately firmer while the Pound has come under moderate pressure, the former underpinned by a resumption of risk aversion in Asian equity markets and the latter affected by news that the respective lead negotiators from the UK and EU, Raab and Barnier, faltered over the Irish border backstop issue. It also remains clear that Prime Minister's Brexit plan, aka the Chequers plan, lacks support on both sides of the Channel. USD-JPY has drifted below Friday's 111.88 low, while the Pound is showing a 0.3% loss to both the Dollar and Euro. Cable printed a three-session low at 1.3084. EUR-USD, meanwhile, has been playing a narrow range around the 1.1550 mark.

    [EUR, USD]
    EUR-USD has been playing a narrow range around the 1.1550 mark. Italian yields have stabilised in recent sessions, but the jury remains out with regard to the credibility and stability of the populist coalition government. Markets have likely factored in a discount in the Euro. We expect EUR-USD to remain without strong direction for now, although see risks as been greater for a sustained downside move than for a sustained upside move. Support is at 1.1539-44.

    [USD, JPY]
    USD-JPY has been plying a narrow range around 112.00, holding above Friday's 111.88 low. This is now the third consecutive session the pairing has hovered around the 112.0 mark. Yen crosses have seen a similar price action. It's been a negative session for Asian stock markets so far, though there has been limited safe haven demand for the Yen as yet. Japan's Nikkei 225 is down 1.8% heading into the Tokyo close, breaching last week's low, while China's SSE index is 0.6% for the worse, so far remaining above last week's lows. The usual suspects have been weighing on equities, as relayed in circulating market narratives -- U.S.-China trade waring and higher U.S. and global yields (although softer today). There was also news that the UK and EU called off negotiations at the week until this week's Brussel's summit (Wednesday) due to differences on the Irish border backstop plan. In data, Japan's August industrial production was revised to 0.2% m/m growth, down from the preliminarily estimated 0.7% m/m and decelerating from 0.6% growth in the month prior. Overall, for USD-JPY, we still directional risks as being to the downside given the risk for a sustained period of risk aversion in global markets, which could in turn generate safe haven demand for the Yen and offset otherwise bullish USD-JPY fundamentals.

    [GBP, USD]
    The Pound has come under moderate pressure on news that the respective lead negotiators from the UK and EU, Raab and Barnier, faltered over the Irish border backstop issue. It also remains clear that Prime Minister's Brexit plan, aka the Chequers plan, lacks support on both sides of the Channel. Raab suggest that a deal should be made in November, which lower expectations with regard to this week's summit. Cable posted a three-session low at 1.3084, while EUR-GBP has lifted to a 10-day high at 0.8823. We anticipate that Sterling will remain under pressure unless there is news of a breakthrough on the Brexit negotiation front.

    [USD, CHF]
    EUR-CHF has settled near 1.1450 after rallying to a two-month high of 1.1492. The gains were concomitant with a calming in Italian asset markets, although the jury remained out with regard to the credibility and stability of the populist coalition government, to which markets are likely to demand a discount in the Euro. The cross has resistance at 1.1537-40.

    [USD, CAD]
    USD-CAD has settled in the lower 1.3000s, below the three-week high that was pegged last week at 1.3070. There have been mixed forces acting on the pairing, with the U.S. yield advantage of the Canadian yields having eroded in recent sessions, while last week's 5%-plus dive in oil prices this week took a toll on the Canadian Dollar, though crude markets have now appeared to have found a footing. On balance, we favour the upside in USD-CAD. The pair has support at 1.2893-95. Both the U.S. and Canadian calendars are devoid of top-tier releases today.

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