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By XE Market Analysis September 25, 2017 3:23 am
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    XE Market Analysis: Europe - Sep 25, 2017

    The euro has come under pressure following the election in German, which produced the expected win for Merkel but saw her party and the SPD coalition partner lose ground to the nationalist AfD, the upshot of which is political uncertainty as there is no easy coalition options. EUR-USD and euro crosses are likely to remain under pressure as a consequence. EUR-USD logged a low at 1.1986. EUR-GBP has been the sharpest faller, losing over 0.6% and making a 0/8787 low. Elsewhere, the New Zealand dollar has dropped sharp following weekend elections that failed to produce a clear winner. The kiwi is down by nearly 1%. USD-JPY logged a two-session just above 112.50, with North Korea refraining any fresh missile tests.

    [EUR, USD]
    The euro has come under pressure following the election in German, which produced the expected win for Merkel but saw her party and the SPD coalition partner lose ground to the nationalist AfD, the upshot of which is political uncertainty as there is no easy coalition options. EUR-USD and euro crosses are likely to remain under pressure as a consequence. EUR-USD logged a low at 1.1986. EUR-GBP has been the sharpest faller, losing over 0.6% and making a 0/8787 low. We expect the euro to remain offered for now. EUR-USD resistance is at 1.1957-60, and support at 1.1850.

    [USD, JPY]
    USD-JPY logged a two-session just above 112.50, with North Korea refraining any fresh missile tests. The BoJ's reaffirmation, at last week's policy meeting, of its commitment to yield curve control and ultra-accommodative monetary policy in general was an effective endorsement for yen bears. Caution is advised, however, given North Korea's advance to becoming a nuclear power remains a wildcard risk, as the Japanese currency will typically rally amid any heightening in geopolitical tensions. USD-JPY has trend support at 111.90-91.

    [GBP, USD]
    Sterling has rallied in early-week trading, being a chief benefactor of euro weakness following the German election result. We don't recommend following sterling higher. Brext concerns will remain, and Moody's downgraded its UK sovereign rating by one level to Aa2. The follow's a keynote speech by Prime Minister May on Friday, where she signalled that the government is aiming for a hard exit form the EU, rejecting the Norwegian and Canadian models as being unsatisfactory for the UK while admitting that she is not pretending that you can have all the advantages of the single market with none of the disadvantages.

    [USD, CHF]
    EUR-CHF has come off the boil after clocking a new 32-month high at 1.1623 on Friday. Political uncertainty in Germany has taken a toll on the euro. The SNB stated at its quarterly policy review this month that the Swiss franc "remains highly valued," even in light of the relatively sharp weakening the currency saw from late July. We look for EUR-CHF to make an eventual return to the SNB's former floor level, at 1.2000, though this assumes that the political situation in Germany becomes clearer.

    [USD, CAD]
    USD-CAD has settled in the lower 1.23s after bolting to a two-week high of 1.2391 last Wednesday, following the Fed's hawkish guidance, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up for now. This comes amid signs that the four-month bear phase in USD-CAD, during which time the U.S. buck lost 12% to the Canadian dollar, was starting to wane. The early-September high at 1.2415 provides an initial target ahead of 1.2500. Support is at 1.2283-85.

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