Home > XE Currency Blog > XE Market Analysis: North America - Apr 10, 2015

AD

XE Currency Blog

Topics7223 Posts7268
By XE Market Analysis April 10, 2015 7:01 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5147
    XE Market Analysis: North America - Apr 10, 2015

    EUR-USD extended south to a new three-week lows under 1.0600, leaving a low at 1.0589 before finding some buoyancy. The move coincided with a fresh advance in the dollar's yield advantage to above 180 bp in the 10-year T-note versus Bund comparison, up from 178-179 bp earlier and from levels nearer 170 bp that were seen earlier in the week. This said the latest wave of selling is more euro driven, with EUR-JPY and EUR-GBP concurrently digging out new lows. EUR-JPY selling curtailed USD-JPY's upside aspirations, which left the pair sinking to the lower 120.00s. EUR-JPY dove to three-week lows under 127.50, extending the cumulative loss the cross has seen this week to nearly 3%. 'Greeaccident' concerns in the Eurozone continue to afflict reserve and real-money fund managers, despites Athens payment of the latest IMF tranche on Thursday. AUD-USD's recent run higher has stalled with the pair struggling to sustain gains above 0.7700. Lower iron ore prices (futures down over 2.5% during Asia-Pacific hours) and a Bloomberg poll finding all of 26 respondents expecting the RBA to cut interest rates in May put a lid on the Aussie.

    [EUR, USD]
    EUR-USD has extended south to a new three-week lows under 1.0600, leaving a low at 1.0589 before finding some buoyancy. The move coincided with a fresh advance in the dollar's yield advantage to above 180 bp in the 10-year T-note versus Bund comparison, up from 178-179 bp earlier and from levels nearer 170 bp that were seen earlier in the week. This said the latest wave of selling is more euro driven, with EUR-JPY and EUR-GBP concurrently digging out new lows. We remain dollar bullish. Last week's sub-expectations March jobs report was more a case of mean reversion after a period of outsized gains from November through to February rather than a signal of a trend change. Juxtaposed to this is the threat of a 'Greaccident' in the Eurozone, along with ongoing ECB money printing.

    [USD, JPY]
    USD-JPY settled modestly lower, to the mid-to-lower 120s, after surging to a three-week peak of 120.74 during yesterday's dollar-led rally. Today's its a different picture with EUR-JPY selling dominating, curtailing USD-JPY's upside aspirations. EUR-JPY dove to three-week lows under 127.50, extending the cumulative loss the cross has seen this week to nearly 3%. 'Greeaccident' concerns in the Eurozone continue to afflict reserve and real-money fund managers, despites Athens payment of the latest IMF tranche on Thursday. The dollar, meanwhile, has traded generally firmer following the release of the FOMC minutes to the recent Fed policy review, which although showing discord among members also affirmed that the Fed remains on course for an eventual rate hike -- a stance which contrasts that of the BoJ. We expect USD-JPY's bias to remain higher, seeing scope for a return to recent highs in the 121.00-122.00 area. The 20-day moving average at 120.04 and the 120.00 level are now support levels.

    [GBP, USD]
    We recommend a short position in Cable into the upcoming May-7 election, targeting a revisit to the low seen in May 2010 at 1.4229. It is highly probable that the election will produce a hung parliament, though it's uncertain whether a coalition government will form, or a minority government will come into existence. There is also a good chance that the SNP (Scottish Nationalist Party) could end up holding the balance of power, and another uncertainty is the possibility that a new election might be called (though most pundits reckon is unlikely in the event of a hung parliament). There are numerous possibilities in terms of policy implications, ranging from 'anti-business' fiscal tightening to, if the Conservatives do well, a course to hold a referendum on EU membership by 2017. So far UK markets have been trading benignly as the elections starts to loom large on the horizon, despite the evident risks. With poll after poll pointing to a messy outcome, sterling looks set for a bout of wobbles.

    [USD, CHF]
    EUR-CHF has established a lower trading range below 1.0500. The SNB said at its March policy review that the franc is "significantly overvalued and should continue to weaken over time," and that, in a shot across the bows of the market, said it will continue to take account of the franc rate situation in policy decisions and "remain active in the foreign exchange market, as necessary." Both the SNB and SECO cut growth forecasts, factoring in the sharp franc appreciation that was seen in January after the central bank abandoned the 1.20 floor in EUR-CHF. The SNB expects growth of just under 1% this year (down from 2% expected previously) and SECO 0.9% (from 2.1%). Key support in EUR-CHF is at 1.0400-1.0422.

    [USD, CAD]
    USD-CAD extended further into one-week territory above 1.26 after yesterday breaching above the 50-day moving average at 1.2560. Bigger picture, yield differentials should remain a U.S. dollar positive into 2016 as the Fed remains on course to tighten policy, albeit on a less certain timetable than was envisaged before the March jobs report, weakness in which, we should point out, was more about mean reversion than change of trend. The Mar-17 trend high at 1.2835 and the Aug-2009 high at 1.3063 are bigger picture targets. USD-CAD support is at 1.2522, 1.2500 and 1.2429-30.

    Paste link in email or IM