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By XE Market Analysis October 17, 2017 3:34 am
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    XE Market Analysis: Europe - Oct 17, 2017

    The dollar has continued to trade perkily. USD-JPY flipped back above 112.00 as major Asian stock indices hit 10-year highs after Wall Street hit fresh record highs on Monday. The pair has a well-established tendency to correlate with notable moves in global equity markets, though persisting concerns about political disharmony in Spain and North Korea (Pyongyang threatened nuclear war could "break out at any moment") may have been curtailing yen losses. EUR-USD declined for a fourth consecutive session, this time logging a out a one-week low at 1.1756. The dollar also held firm against the Australian dollar and other dollar-bloc currencies, along with sterling and other currencies. Sterling for its part has seen little reaction thus far to news that British PM May and EU Commission President Juncker agreed at a supper meeting last night that Brexit negotiations should "accelerate over the months to come".

    [EUR, USD]
    The euro has remained under the cosh for a second day. EUR-USD declined for a fourth consecutive session, this time logging a out a one-week low at 1.1756, while the common currency has remained heavy after posting lows versus the yen and other currencies yesterday. Last week's Bloomberg report that the ECB is set on extending its QE program, along with continued disharmony in Spanish politics, seems to be taking a toll on the common currency. In the bigger view, with Fed tightening expectations having been cooled by soft U.S. CPI data, which played to concerns among some policymakers about chronic low inflation, EUR-USD still remains without a pronounced directional bias. We expect a broader trading band, defined roughly by 1.1400 and 1.1900, will persist.

    [USD, JPY]
    USD-JPY flipped back above 112.00 as major Asian stock indices hit 10-year highs after Wall Street hit fresh record highs on Monday. The pair has a well-established tendency to correlate with notable moves in global equity markets. The price action puts in a stop to USD-JPY's downward drift, which has been seen for over a week now after the pair capped out at one-month rally at 113.44. The pairing is now holding up just above its 200-day moving average. We anticipate a phase of limited directional bias. Support is at 111.65 and 111.75-76, and resistance is at 112.39-40.

    [GBP, USD]
    Sterling has seen little reaction thus far to news that British PM May and EU Commission President Juncker agreed at a supper meeting last night that Brexit negotiations should "accelerate over the months to come." Markets may want to see surer signs of this before reacting. Cable settled near 1.3250, down from Friday's high at 1.3338. The Queen's currency still remains lower by 1.8% in the m/m comparison, and by an average 1.0% with the cases against euro and yen included. Brexit remains a central issue. The first phase of negotiations, which were on divorcing terms ended unresolved, and this week's EU summit will not be, as originally hoped by the British government, the point that talks would move on to the future trading relationship. Most pundits are reckoning that the negotiations are entering a critical phase, and the spectre of a no-deal exit becoming a much-more talked about possibility. Staunch supporters of Brexit argue that Britain must be prepared to leave without a deal to strengthen is negotiating stance, arguing that the EU will agree to a free trade deal with the UK at the 11th hour.

    [USD, CHF]
    EUR-CHF has settled back around the 1.1500 level after last week capping out a near two-week rally phase at 1.1566, which was the loftiest level seen since September 25. Former EUR-CHF resistance at 1.1488-90 has been acting as a support. We have been anticipating an eventual return to 1.2000, which is the former trading floor of the SNB's, though this assumes that political tensions (Catalonia in particular) don't worsen, as the franc tends to find demand in the face of news developments that are threating to the political integrity of the Eurozone.

    [USD, CAD]
    USD-CAD has found a footing after last Thursday posting a new correction low of 1.2432, which extended the pullback from the recent seven-week peak at 1.2600. The move was driven by broader softness in the U.S. dollar, with the combined impact of the FOMC minutes from the September meeting and sub-forecast U.S. CPI data last week, weakening the conviction of market expectations for a December rate hike. The Canadian dollar, however, is likely to retain a neutral-to-softer bias, with BoC policymakers having actively dispelled any notion that it is on a tightening path. The BoC's quarterly business survey, released yesterday, showed economic activity to be remaining robust in a state of moderation following a strong performance over the summer period..

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