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By XE Market Analysis September 23, 2014 2:45 am
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    XE Market Analysis: Europe - Sep 23, 2014

    Narrow ranges have prevailed in pre-Europe FX trade in Asia. An above-forecast China flash HSBC-Markit manufacturing PMI helped lift stocks in the region, but had limit impact on currencies, aside from helping generate a moderate bid in the AUD, which lifted above 0.8900 against the USD. News that BHP Billiton Mitsubishi Alliance are to cut 700 mining jobs had little impact. Elsewhere, USD-JPY posted a narrow 108.60-75 range, with the consolidation of the sharp gains seen over the last month continued. EUR-USD saw a 1.2842-1.2858 range, also remaining in consolidation mode. Sterling traded on the firm side, with Cable managing to make a two-day high of 1.6391 and EUR-GBP a two-day low of 0.7841.

    [EUR, USD]
    EUR-USD is modestly firmer this week. The overall bear trend, which has been in place since the May high at 1.3993, has been losing some momentum after an accelerated period of losses from early September. Markets have to some extend priced in the divergence in ECB and Fed outlooks though growth divergence between the Eurozone and U.S. economies should still keep the overall bias lower in EUR-USD. We are targeting the 2013 low at 1.2745. Initial resistance is marked at 1.2900, and key resistance is marked at 1.2995-1.3000.

    [USD, JPY]
    USD-JPY posted a narrow 108.60-75 range in Tokyo trade today, with the consolidation of the sharp gains seen over the last month continuing below last Friday's six-year peak at 109.46. Fundamentals remain yen bearish. Japan's Cabinet Office last week downgraded its economic assessment on the back of weak consumption, flat exports and weak industrial output. We target 110.00. Near-term support is marked at 108.60, ahead of 108.30-35.

    [GBP, USD]
    The pound has settled after a big event week. Scotland's "No" to independence vote avoided what would have been a chaotic break away from the United Kingdom. Markets are now re-focused on U.K. fundamentals, which is characterised by benign inflation and wage data that is leaving the BoE on an on-hold-for-now policy stance, which should keep Cable a sell-on-rallies. There is also be political fallout from the Scottish referendum, with more devolution to Scotland and constitutional changes to come. Cable support is at 1.6300 and 1.6284. Good selling interest would likely be seen into 1.6400.

    [USD, CHF]
    EUR-CHF has re-established itself below 1.2100 after dipping back below here last Thursday when the SNB maintained prevailing policy settings after its policy review, refraining from implementing negative interest rates. Swiss policymakers had been emphasizing recently that negative rates was an option, so the lack of the move prompted CHF short covering. Instead, the SNB left the three-month Libor target at 0.00-0.25% and maintained its commitment to the 1.2000 limit peg in EUR-CHF. This recent new major-trend low of 1.2044 remains in focus, though the speculative market will be wary of possible SNB intervention. The SNB will find defending the 1.2000 cap in EUR-CHF a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance.

    [USD, CAD]
    USD-CAD has been seeing some volatile trade, recovering 1.1000 after the Fed raised its interest rate projection. We look for a re-test of the March major-trend peak at 1.1278 on the back of U.S. dollar favourable yield differentials. Support is at 1.0920-26 (which encompasses a recent low).

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