Home > XE Currency Blog > XE Market Analysis: North America - Apr 14, 2015

AD

XE Currency Blog

Topics7443 Posts7488
By XE Market Analysis April 14, 2015 7:06 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5367
    XE Market Analysis: North America - Apr 14, 2015

    EUR-USD lifted to the mid-to-upper 1.05s from the London AM low at 1.0531, leaving yesterday's four-week low at 1.0520 untroubled. Much stronger than expected Eurozone industrial production data, which rose 1.1% m/m in February, helped underpin the euro and gave euro bears reason to pause for thought. USD-JPY traded to a six-day low of 119.55, on route breaching below both the 20- and 50-day moving averages. The move was driven by EUR-JPY, which dove to a near two-year low at 126.09 as the cumulative losses the cross has seen over the last eight days extended to about 4%. Sterling underperformed, giving back about two thirds of the gains seen yesterday in the case against the dollar, making a low of 1.4603 before settling around 1.4630. An unexpected dip in the UK's March core CPI to a cycle low of 1.0% y/y from 1.2% invited fresh selling. The headline March CPI figure came in at 0.0%, matching the record low seen in February, as expected. The data should keep the BoE tightening debate on a backburner into the May-7 general election. AUD-USD ebbed back to within a whisker of yesterday's 0.7553 low, while AUD-JPY logged a one-week low. The Aussie came under pressure after S&P downgraded its outlook for Western Australian to negative from stable, the backdrop to which is a decline in commodity exports.

    [EUR, USD]
    EUR-USD lifted to the mid-to-upper 1.05s from the London AM low at 1.0531, leaving yesterday's four-week low at 1.0520 untroubled. Much stronger than expected Eurozone industrial production data, which rose 1.1% m/m in February, helped underpin the euro and gave euro bears reason to pause for thought. January data were revised lower, but the rolling three-month average still lifted to 0.9% from 0.8%. This marks a four month improving trend and confirms the improving tone confidence surveys, the more recent editions of which point to continuing recovery. The ECB's latest bank lending survey also highlights that banks are reporting a positive impact of QE on loan supply to businesses. If sustained, this should work through to a better supported euro. For now, however, the risk of a 'Greeaccident' scenario remains a menacing wildcard for reserve and real money fund managers, and has driven Bund yields to new record lows today. The Fed, meanwhile, remains on a tightening course, although waiting for more slack in the economy to be taken up before acting. We still see a good chance that parity will be reached in EUR-USD. The Mar-12 cycle low at 1.0462 offers an interim focus. Resistance is marked at 1.0620 and 1.0683-1.0700.

    [USD, JPY]
    USD-JPY traded to a six-day low of 119.55, on route breaching below both the 20- and 50-day moving averages. The move was driven by EUR-JPY, which dove to a near two-year low at 126.09 as the cumulative losses the cross has seen over the last eight days extended to about 4%. USD-JPY's technical picture now looks pretty muddy. The pair has been plying a broadly sideways, albeit choppy path since early December, though we remain moderately bullish. The Fed remains on course for an eventual rate hike, and while albeit on an uncertain timetable this is a stance which contrasts that of the BoJ. We see scope for USD-JPY to return to recent highs in the 121.00-122.00 area, and potential to 125.00 beyond here. Support is marked at 119.43-50 and 119.20, which is the prevailing position of the 200-day moving average.

    [GBP, USD]
    Sterling has been underperforming, giving back about two thirds of the gains seen yesterday in the case against the dollar. An unexpected dip in March core CPI to a cycle low of 1.0% y/y from 1.2% invited fresh selling, though the pound had been under some pressure ahead of the data release. The headline March CPI figure came in at 0.0%, matching the record low seen in February, as expected. The data should keep the BoE tightening debate on a backburner into the May-7 general election. We have been recommending a short position in Cable, targeting a revisit to the May 2010 low at 1.4229. Polls indicate a high probability that the election will produce a hung parliament, which would produce either a coalition or -- worse -- a minority government. There is also a good chance that the SNP (Scottish Nationalist Party) will end up holding the balance of power, an eventuality that would likely be taken negatively by markets. There are numerous possibilities in terms of policy implications, and there is an added risk that the fiscal policy in a minority government scenario will lack clarity. Best case scenario would be a grand coalition between the Labour and Conservative parties, though this looks unlikely.

    [USD, CHF]
    EUR-CHF has drifted to 10-week lows in the low 1.03s amid the latest bout of euro underperformance. While this is the case the SNB will probably be best advised to sit on its hands, although the SNB said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." Sight deposit data, however, suggest that the SNB hasn't intervened since January, and previous speculation of the SNB having a "soft floor" at 1.0500 has long since been discredited. EUR-CHF's low today is 1.0363, the lowest since Jan-30. The post-peg abandonment low is at 0.9714 (according to our data), though we don't anticipate a revisit. For every big figure EUR-USD losses, EUR-CHF has been losing about 50 pips, so even with EUR-USD trading 0.95 handle, on this crude basis, the cross would still be trading above 0.9800. The wildcard for the euro and EUR-CHF is what happens in Greece.

    [USD, CAD]
    USD-CAD has ebbed back under the 1.2600, leaving Friday's two-week high at 1.2466 untroubled. 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 was more about mean reversion after a series of outsized headline gains 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 1.2567 (50-day moving average) and 1.2500.

    Paste link in email or IM