Home > XE Currency Blog > XE Market Analysis: Europe - Oct 18, 2017

AD

XE Currency Blog

Topics4790 Posts4835
By XE Market Analysis October 18, 2017 4:36 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3247
    XE Market Analysis: Europe - Oct 18, 2017

    The dollar traded with a firming bias, gaining versus New York closing levels against most currencies, but still remaining shy of respective highs that were logged yesterday. Clouding the picture presently is the looming decision by the Trump administration on who will have the Fed chair, whether it will be the reappointment of dovish Yellen or the decidedly more hawkish Taylor, among the five candidates being considered. Trump is expected to announce who will lead the Fed by November 3. EUR-USD has ebbed to 1.1755, about 20 pips down on yesterday's closing level. Yesterday's nine-day low is at 1.1736. USD-JPY has lifted to a 112.39, drawing in on yesterday's one-week high at 112.48. Cable is softer, at 1.3171, but has remained shy of the four-session low it posted yesterday at 1.3154. Warnings about Brexit from the OECD and various business groups, yesterday, along with shaky political backdrop (most pundits see an outside risk of there being another general election if the Tory party's fragile link with the Northern Ireland's DUP breaks) should keep the pound a sell on rallies.

    [EUR, USD]
    EUR-USD has settled above 1.1750 after yesterday logging a out a nine-day low at 1.1736. The euro has in the meantime posted gains versus the yen, sterling and other currencies. Madrid's clampdown on Catalonia's independence movement appears, at least for now, and at least from the perspective of participants in financial markets, mollified concerns of political instability in Spain, though there is a real risk that the heavy-handed response will only intensify the secessionist movement. Markets also alert to the Trump administration's upcoming decision on who will lead the Fed over the next term, with the five candidates ranging from dovish Yellen, the present chair of the central bank, to the decidedly hawkish Taylor. Trump is expected to announce his choice by November 3. Incoming U.S. data has been, and we expect will continue, to keep expectations for a 25 bp hike in the funds rate in December alive, although there remains little signs as yet that the diminishing slack in the labour market is translating to high price pressures. We favour following EUR-USD's nascent down trend. Trend resistance is at 1.1793-95, and support is at 1.1720-21.

    [USD, JPY]
    USD-JPY has lifted to a 112.39, drawing in on yesterday's one-week high at 112.48. The yen has been weakening versus the euro and Australian dollar, among other currencies, reflecting the buoyancy in global stock markets. USD-JPY's price action over the last couple of sessions puts in a stop of the downward drift, which had been seen for over a week after the pair capped out at a one-month rally at 113.44. We anticipate a phase of limited directional bias. Support is at 111.96-98, and resistance is at 112.39-40.

    [GBP, USD]
    Cable is softer, near 1.3171, although has remained shy of the four-session low it posted yesterday at 1.3154. Warnings about Brexit from the OECD and various business groups yesterday, along with shaky political backdrop (most pundits see an outside risk of there being another general election if the Tory party's fragile link with the Northern Ireland's DUP breaks) should keep the pound a sell on rallies. BoE-speak during parliamentary testimony yesterday also showed policymakers to be expecting inflation to scale back after peaking over the next month or two. The OECD trimmed its UK growth forecasts and avouched that Brexit, especially a hard Breixt, would "hurt trading relationships and reduce logn-term growth." Much to the chagrin of Brexiteers, the OECD asserted that the UK economy would get a "significant" boost if the Brexit vote were reversed. BoE Governor Carney, and others on the MPC, said that inflation will dip back after rising more over the near-term, once the impact of post-Brexit vote sterling weakness falls out of y/y comparisons. Carney also warned that the businesses are losing confidence that Brexit will proceed smoothly. We remains Cable bears, seeing scope for a new sub-1.3000 range developing in the weeks ahead.

    [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 spiked to a 12-day high of 1.2591 on a report that Canada and Mexico were set to reject NAFTA reform proposals. The pair subsequently ebbed back to the low 1.25s. We expect the bias will remain to the upside, with the Fed still seen on track to hike the Fed funds rate by 25 bp in December, and with BoC policymakers having actively dispelled any notion that it is on a committed tightening path. The BoC's quarterly business survey, released earlier in the week, showed economic activity to be remaining robust in a state of moderation following a strong performance over the summer period. USD-CAD has support at 1.2456-60.

    Paste link in email or IM