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

AD

XE Currency Blog

Topics4670 Posts4715
By XE Market Analysis September 18, 2017 3:39 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3176
    XE Market Analysis: Europe - Sep 18, 2017

    The dollar majors have been in consolidation mode in thin early-week trading, in the absence of Tokyo markets, where were closed in observance of a Japanese public holiday. USD-JPY firmed up some early on, settling above 111.10 but holding below Friday's 111.33 two-month peak. EUR-USD made time in the mid 1.19s. Sterling has started the week on a steady footing after rallying strongly last week following the BoE's unexpected hawkish turn, with the central bank having laid the groundwork for a first-in-a-decade rate hike. Cable settled in the upper 1.35s, off the 15-month seen on Friday at 1.3616. We recommend selling into sterling's gains. The September Rightmove house price index for the UK came in weak, and a Markit survey found the squeeze on household incomes is the biggest in three years. The Brexit process hasn't been going smoothly, and there are fresh signs of division in PM May's Conservative Party after Boris Johnson was rebuked by the head of the head of the UK official states office for rehashing false figures about Brexit savings.

    [EUR, USD]
    EUR-USD has been making time in the mid 1.19s in early-week trading. Friday's flurry of U.S. data left Treasury yields slightly lower, after some chop, and the dollar without fresh directional impulse. Markets have been factoring in the ECB's path to tapering QE, though a lot of this story would seem to have been priced into EUR-USD by now. The FOMC is this week's main event, while North Korea will doubtlessly be waiting in the wings to spring a malevolent surprise. The Fed will announce its decision on Wednesday, where it is widely anticipated to mark the start of the process to deleverage its balance sheet, which is intended to be very gradual in nature as per the path the central bank laid out in June. Of more importance will be the dot-plot forecasts and about what they suggest about rate moves this year and through 2018. On balance, we think the Fed's guidance might just be sufficiently hawkish to give the dollar a bid, although nothing too dramatic as caution will be evident in the communication given geopolitical risks and the hurricane impact.

    [USD, JPY]
    USD-JPY firmed up in thin trading in Asia (Toyo markets were absent today for a public holiday in Japan), though held below Friday's 111.33 two-month peak. The BoJ begins its 2-day policy meeting on Wednesday and announces on Thursday. No changes are expected to the Bank's ultra-loose policy, given the cool inflation backdrop. The August trade report (Wednesday) should see a narrowing in the surplus to JPY 50.0 bln from 421.7 bln previously. The July all-industry index (Thursday) should fall 0.2% m/m versus the prior 0.4% increase. Assuming there is no flare up in geopolitical tensions, which is by no means certain as North Korea marches toward nuclear ICBM capability, we would expect the yen to remain under pressure against the dollar and other major currencies, with the BoJ seen some steps behind its major peers on the path to the normalization of monetary policy. USD-JPY has support at 110.79-80. The July-16 high at 112.20 provides an upside target.

    [GBP, USD]
    Sterling has started the week on a steady footing after rallying strongly last week following the BoE's unexpected hawkish turn, with the central bank having laid the groundwork for a first-in-a-decade rate hike. Cable settled in the upper 1.35s, off the 15-month seen on Friday at 1.3616. We recommend selling into sterling's gains. The September Rightmove house price index for the UK came in weak, and a Markit survey found the squeeze on household incomes is the biggest in three years. The Brexit process hasn't been going smoothly, and there are fresh signs of division in PM May's Conservative Party after Boris Johnson was rebuked by the head of the head of the UK official states office for rehashing false figures about Brexit savings..

    [USD, CHF]
    EUR-CHF has settled to the upper 1.14s after failing to sustain gains above 1.1500 last week, when a six-week high at 1.1529 was printed. The franc took a knock on the SNB 's post-policy meeting guidance, with the central bank, while admitting that exchange rate overvaluation is now less acute, stating that it would remain willing to "intervene in FX markets as necessary" which is "essential in order to reduce the attractiveness of the Swiss franc investment and thus ease pressure on the currency." The SNB said that the currency "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to test early-August 32-month peak is at 1.1538, and continue to advocate that the cross will make an eventual return to the SNB's former floor level, at 1.2000.

    [USD, CAD]
    USD-CAD firmed up some after posting a three-day low at 1.2119 on Friday. The pair last week managed its first up week of the last five weeks, a sign that the downside bias has lost puff. The pairing fell by some 12% since May, reflective of the Canadian economy's pulling out of the low-oil-price-era doldrums and consequential commencement of a BoC tightening cycle. Presently, momentum indicators are flashing oversold, with the 14-day relative strength index at a 28.0 reading (sub-30.0 readings are when the trend has stretched itself relative to historical norms), so caution is advised to trend followers. USD-CAD has support at 1.2080-82.

    Paste link in email or IM