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By XE Market Analysis September 13, 2017 3:27 am
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    XE Market Analysis: Europe - Sep 13, 2017

    The dollar rebound rally has lost gas, with EUR-USD edging out a two-day high and the buck trading softer versus sterling, the Australian dollar, among others, although USD-JPY still managed to eke out a 12-day high. The dollar had been shorted into the weekend, when concerns about the impact of Hurricane Irma and fresh ratcheting up in geopolitical tensions were at an apotheosis, and driving the rebound on Monday and Tuesday had largely been an unwinding of this positioning. This now seems to have run its course. Global stock markets seem to have seen a similar dynamic. EUR-USD has recouped to the upper 1.19s after basing yesterday at a four-session low at 1.1926. Cable, which had a fire lit beneath it by yesterday's above-forecast UK CPI data, extended to a fresh one-year peak, this time at 1.3315. USD-JPY, meanwhile, clocked a 12-day high at 110.29. EUR-JPY posted a 20-month high at 132.01, reflective of the underperformance in the yen.

    [EUR, USD]
    EUR-USD has recouped to the upper 1.19s after basing yesterday at a four-session low at 1.1926. We had been warning that the post-weekend, dollar-buying fuelled drop had been losing momentum over the last day. ECB's Constancio gave Bund yields a lift yesterday by suggesting that the central bank is confident that inflation will return to target and that the central bank's forward guidance may be tweaked. Concerns remain about North Korea, with Pyongyang's progress toward nuclear ICBM capability generally seen as a negative for the buck. EUR-USD support is at 1.1887-90.

    [USD, JPY]
    USD-JPY clocked a 12-day high at 110.29, and EUR-JPY posted a 20-month high at 132.01, reflective of the underperformance in the yen. The weakness in Japan's currency has been concomitant with gains in global stock markets amid relief that hurricane damage has been less than feared in the U.S. With pre-weekend risk-off positioning having been more than reversed, and with the likelihood of further sabre-rattling antics from North Korea as the rogue nation draws nearer to nuclear ICBM capability, we don't recommend following USD-JPY higher, and instead advise on expecting a resumption of the downward trend. Resistance is at 110.49-67, levels which encompass a number of prior daily highs.

    [GBP, USD]
    Sterling has continued to rally strongly in the wake of yesterday's perky UK inflation data. Cable surged to fresh one-year highs above 1.3320 while EUR-GBP has fallen further into six-week low territory under 0.9000. Headline UK CPI rose to 2.9% y/y in August after 2.6% y/y in August, which matches May's cycle peak. The median forecast had been for a fractionally softer outcome of 2.8% y/y. Markets are now anticipating that the minutes from this week's BoE MPC meeting (due Thursday alongside the policy announcement) will show some raised concern about inflation, although the consensus remains for the BoE to leave prevailing policy settings unchanged. We're not so sure the data will have such a big impact, as the influence of post-Brexit currency weakness in buoying prices, which has been the principal source of upward price pressures in the UK, will likely start to wane in the months ahead. This said, we expect that sterling will remain well bid for now.

    [USD, CHF]
    EUR-CHF rallied to a six-week high at 1.1512 as the franc continued to lose safe haven premium amid a global stock market rebound and associated relief that the hurricane damage in the U.S. hasn't been as bad as the worst fears. This has continued a choppy phase in EUR-CHF trading. SNB boss, Jordan, signalled last week that the central bank remains fully committed to its ultra-accommodative monetary policy settings, saying that he and his colleagues did not know if recent franc weakness, which is desirable from their perspective, would sustain. In the scenario that geopolitical tensions ebb back, we would by bullish of EUR-CHF. Assuming the Eurozone economic revival remains on track, which would help quell ECB angst about euro strength, and assuming the ECB commits to QE policy tapering at some point over the next month or two, we would expect the EUR-CHF to eventually recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD yesterday lifted out of a three-day low at 1.2082, and logged a peak at 1.2189, since settling nearer 1.2150. Bigger picture, we anticipate the USD-CAD's downtrend, which has been in place since May, will resume. The Canadian employment report last Friday was supportive of the BoC's path to normalize monetary policy, and Canadian policymakers have been viewing the economy as having escaped the drag from the downside oil price shock of recent years.

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