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By XE Market Analysis April 17, 2018 7:33 am
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    XE Market Analysis: North America - Apr 17, 2018

    A dollar softening theme has prevailed , with EUR-USD ascending to three-week highs above 1.2400 and USD-JPY pushing to three-day lows below 107.00. AUD-USD has also turned higher after weakening in the wake of the release of the RBA's minutes to its April policy meeting, which stated that there was no reason to hike rates over the near term, cementing the view that the central bank will likely be on hold through to 2019. There was a mix of other news, including a weak ZEW investor confidence survey out of Germany, as-expected GDP data out of China, of 6.8% y/y in Q1, an unexpected downward revision in the final release of Japanese February industrial production, to 0.0% m/m from the preliminary estimate of 4.1% m/m. There was also a report that North and South Korea are apparently set on discussing an official end to the war at next week's summit between the two sides leaders. Elsewhere, Cable has punched out a fresh post-Brexit vote high above 1.4350, before ebbing back following a miss in UK wage data.

    [EUR, USD]
    EUR-USD printed a three-week high above 1.2400 before a sub-forecast German ZEW survey put a lid on euro buying. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.

    [USD, JPY]
    USD-JPY edged out a three-day low of 106.88. There was a mix of news, including as-expected GDP data out of China, of 6.8% y/y in Q1, an unexpected downward revision in the final release of Japanese February industrial production, to 0.0% m/m from the preliminary estimate of 4.1% m/m, and a report that North and South Korea are apparently set on discussing an official end to the war. Market participants are also gearing up for the meeting between Trump and Abe, which is expected to be conciliatory in tone as Trump's face-to-face meetings with world leaders tends to be, especially with his softening tone on trade with China and NAFTA. We see near-term risks as being to the downside for USD-JPY, with momentum indicators now turning lower following a three-week rally phase from levels in the mid-104.00s. Resistance is at 107.16-18, and support is at 106.65.

    [GBP, USD]
    Sterling has traded lower after UK labour data showed a miss in wages data, which has been a key metric for the BoE in justifying is guidance for tighter policy. Cable, after logging a 21-month high at 1.4376 ahead of the data release, has fallen back to the 1.4220-30 area. Average weekly earnings came in at 2.8% y/y (including bonuses) in the three months to February, unchanged from the previous month but below the median forecast for 3.0% y/y. This offset a new cycle in the unemployment rate, of 4.2%. We don't think this data will derail the central bank's course to hike the repo rate by 25 bp in May with the labour market tight and wages rising more than inflation for the first time in over a year. More top-tier data is due this week, with inflation figures up tomorrow, and retail sales figures on Thursday. The UK's upper house will also be debating the Brexit bill on tomorrow. We expect March CPI to remain at 2.7% for a second month, above the BoE's 2.0% target. Cable has support at 1.4226-28.

    [USD, CHF]
    EUR-CHF has soared to a new 39-month highs above 1.1900, aided by concomitant gains in EUR-USD and USD-CHF. A background support for the cross is the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in an interview over the weekend with La Liberte newspaper that "it is not yet time to change monetary policy," adding that "we do not want to provoke an appreciation of the Swiss franc." Jordan said that the economic situation has improved over the last year, but low inflation (at 0.8% y/y in March) remained, a problem. EUR-CHF has rallied 11% from mid last year. We have a long standing target for the cross to return to the 1.2000 level, which was the SNB's cap that was abandoned back in January 2015 in the face of euro depreciation caused by ECB monetary stimulus.

    [USD, CAD]
    USD-CAD remained heavy after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that's been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2574-75. The BoC meets on policy this week (announcing Wednesday). Our projection remains for no change to the 1.25% rate setting, along with a cautiously constructive growth outlook salted with trade uncertainty. An as-expected outing would maintain the base-case for further gradual rate hikes this year. The BoC will also release the Monetary Policy Report. GDP is on track to undershoot the BoC's 2.5% estimate in Q1 (we see +1.5%), so it will be interesting to see how they view growth prospects for this year and next.

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