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By XE Market Analysis April 9, 2014 7:24 am
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    XE Market Analysis: North America - Apr 09, 2014

    The commodity-bloc currencies saw fresh highs before settling, while the dollar and euro consolidated, and the yen softened. EUR-USD dipped to a low of 1.3780 during the London AM and subsequently recovered to near net unchanged levels around 1.3800 after ECB's Weidmann said that there is only a limited risk of deflationary spiral. USD-JPY recovered from yesterday's 101.55 low, re-establishing levels above 102.00. The sharp yen gain yesterday spooked Japanese stock markets today, which conspicuously underperformed an otherwise bullish day in Asia and Europe (the Nikkei closed with a 2.1% loss). The Takashimaya department chain also reported a 25% sales drop in the first week after sales tax hike. The AUD was underpinned by home-loan approvals data, which came in at +2.3% m/m in February, the biggest increase since September and above the 1.5% median forecast. AUD-USD extended to a fresh four-month high of 0.9387. NZD-USD edged a new peak of 0.8708, which is the highest level since August 2011. USD-CAD nudged to a 1.0911 low before recovering to the mid-1.09s.

    [EUR, USD]
    EUR-USD dipped to a low of 1.3780 during the London AM and subsequently recovered to near net unchanged levels around 1.3800 after ECB's Weidmann said that there is only a limited risk of deflationary spiral. The EUR's volatility over the last week or so has been driven by somewhat inconsistent communication from ECB members. The market had been starting to price in further easing measures, but recent policymaker guidance has been to emphasize that further action is more a possibility than a probability, and this has underpinned the EUR's rebound this week. We continued to take a bigger-picture bearish view of EUR-USD, targeting 1.3500. This view is based on the divergence between Fed and ECB policy paths, with the former having already signalled that a rate hike is on the horizon while the latter remains embroiled with fighting a threat of deflation. EUR-USD resistance is marked at 1.3820 (Apr-2 high) and 1.3875.

    [USD, JPY]
    USD-JPY recovered from yesterday's 101.55 low, re-establishing levels above 102.00. The sharp yen gain yesterday spooked Japanese stock markets today, which conspicuously underperformed an otherwise bullish day in Asia and Europe (the Nikkei closed with a 2.1% loss). The Takashimaya department chain also reported a 25% sales drop in the first week after sales tax hike. This backdrop guided the yen lower. USD-JPY's low yesterday's coincided with the 200-day moving average, and we expect this to hold, and that the bigger picture direction to remain to the upside.

    [GBP, USD]
    Sterling has consolidated after rallying yesterday on production data out of the U.K., which smashed expectations and implied that we'll see upward tweaks in Q1 GDP forecasts. Cable has settled in the low-to-mid 1.67s after logging a three-week high of 1.6754. Recent highs between 1.6788 and 1.6822 is a key resistance zone, and good selling interest would likely be seen on any approaches. Last week's March PMI surveys had disappointed relative to market expectations, but the data still points to healthy expansion in the economy, while yesterday's more laggard official data suggests GDP growth may be a little higher this quarter than previously anticipated. The recent rebound in the yen may make GBP-JPY an attractive route for sterling bulls as BoE and BoJ policy paths are starting to diverge..

    [USD, CHF]
    EUR-CHF has settled lower, below 1.2200 again, after making a two-month high of 1.2249 last Friday. The recent up move reflected an unwinding of the Swiss franc's safe-haven premium. The cycle low of 1.2104 was left unchallenged during the recent risk-off phase. We see potential for a recovery to the 1.2300-1.2400 area, assuming there are no renewed flare-ups in geopolitical tensions.

    [USD, CAD]
    USD-CAD has found a toe-hold just above the Feb-19 low of 1.0910. This level and 1.0900 are key support levels, followed technical bearish price action over the last week. USD-CAD's mid-March surge to new cycle high of 1.1278 now looks to have been false breakout. While we are bearish over the nearer term, though we would also advise caution as the Fed vs BoC stance should remain supportive of USD-CAD.

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