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By XE Market Analysis September 26, 2017 3:24 am
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    XE Market Analysis: Europe - Sep 26, 2017

    USD-JPY tumbled to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. Elsewhere, the euro has largely settled after underperforming since the German election victory, though remains heavy, near its lows. EUR-USD clocked an eight-week low of 1.1831 after the London interbank close yesterday, since settling around 1.1850. We advise euro bears short EUR-JPY. The kiwi dollar posted fresh lows with the New Zealand political scene in disarray following unclear results at weekend elections.

    [EUR, USD]
    EUR-USD clocked an eight-week low of 1.1831 after the London interbank close yesterday, since settling around 1.1850. We remain bearish. The euro's rally from April had been already showing signs of tiring before the weekend's election in German, which has returned Merkel as Chancellor but in a weakened position, heralding challenging coalition talks. There has been "bearish divergence" between the 14-day RIS and spot, for instance, with spot stretching to new highs while the underlying indicator of trend momentum started to decline. EUR-USD resistance is at 1.1870. The August-17 low at 1.1662 provides an initial downside target.

    [USD, JPY]
    USD-JPY tumbled to around 111.50 after North Korea said Trump's threats of last week were tantamount to a declaration of war. EUR-JPY and other yen crosses also dropped as the yen's safe haven premium came back into play. We expect USD-JPY, which is coming out of a five big figure rally from early September levels near 107.0, to remain heavy for now. The immediate concern is that Pyongyang will carry out its threat to test detonate a H-bomb the Pacific. USD-JPY has resistance at 111.79-80, and support at 111.14-16. We look for declines to around 109.50.

    [GBP, USD]
    Cable is in consolidation mode with a modest downside bias, having clawed out an 11-day low at 1.3431 yesterday, which surpassed recent lows by about 20 pips. Sterling is coming off a nine big figure rally from the late August low to the high that was seen at 1.3659 last week, a bid fuelled by the BoE's signalling that it is likely to take back the "emergency" post-Breixt rate cut of August 2016. We have been advising caution, given persisting Brexit-related uncertainties (the consequences of which were cited by Moody's as part of its rationale for cutting cut the UK's sovereign rating to Aa2 from Aa1), and the fact that inflation readings are set to decline in the coming months as base effects caused by sterling's post-Brexit nosedive drop out of the equation. Cable has resistance at 1.3587-90.

    [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 lifted to a four-day high 1.2389, which is three pips within three-week high terrain. The bid tone follows the Fed's hawkish guidance of last week, which has helped readdress the recent imbalance between the respective Fed and BoC outlooks. We expect the pair to hold up. There had already been 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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