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By XE Market Analysis April 19, 2018 7:05 am
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    XE Market Analysis: North America - Apr 19, 2018

    The dollar has been trading near steady on net, while moderate yen weakness was a theme during the Tokyo session. The pound also came under some pressure following a miss in UK retail sales, and the Australian dollar lifted concomitantly with commodity prices out of post-Australian jobs data lows, subsequently posting a fresh trend high. EUR-USD slumped to an intraday low of 1.2354 after edging out a two-session peak at 1.2400. The pair has remained comfortably off the three-week high posted on Tuesday at 1.2414 and comfortably above the two-session low posted yesterday at 1.2341. There have been little by way of data or other developments of note out of the Eurozone, though the region's current account data showed a narrowing in the surplus to EUR 35.1 bln in February. USD-JPY edged out a three-session high at 107.51, EUR-JPY a two-month high, just above 133.00. AUD-USD lifted out of its 0.7773 low to post a five-week high at 0.7812. In news, Trump said he wants a bilateral trade deal with Japan, and there was reportedly no discussion of currency levels between the two leaders. On the trade front, China's commerce ministry repeated today that it is prepared to respond to U.S. trade threats.

    [EUR, USD]
    EUR-USD slumped to an intraday low of 1.2354 after edging out a two-session peak at 1.2400, which was meet with a pronounced wave of selling. The pair has remained comfortably off the three-week high posted on Tuesday at 1.2414 and comfortably above the two-session low posted yesterday at 1.2341. There have been little by way of data or other developments of note out of the Eurozone today. Eurozone current account data showed a narrowing in the surplus to EUR 35.1 bln in February. Yesterday's Eurozone March HICP data showing a downward revision to 1.3% y/y from 1.4% y/y, and Tuesday's release of a sub-forecast German ZEW survey, put a lid on euro buying as the data further developed an economic-slowing theme in the Eurozone economy. 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. Near-term risks look to be skewed to the downside. Initial support is at 1.2325-26.

    [USD, JPY]
    USD-JPY edged out a three-session high at 107.51, EUR-JPY a two-month high, just above 133.00, while AUD-JPY managed a to post a four-session peak. The generally more risk positive backdrop has continued to weigh on the yen as residual safe haven premium unwinds and markets return focus to bullish fundamental arguments for USD-JPY (specifically yield differentials, which have markedly gapped in the dollar's favour this year). From the Trump-Abe meeting this week, Trump said he wants a bilateral trade deal with Japan, and there was reportedly no discussion of currency levels between the two leaders. China's commerce ministry said it is prepared to respond to U.S. trade threats. USD-JPY has been in a rally phase for some three weeks now. Support is at 107.11-12. We look for a breach of last week's two-month high at 107.78 to reaffirm the developing trend.

    [GBP, USD]
    Sterling has traded lower in the wake of UK retail sales data miss. Cable tipped over 30 pips from levels above 1.4190 to a low of 1.4160, which is s five-session nadir with today marking a third consecutive day of losses. The pound is now down by 1.3% from the 21-month high it posted against the dollar on Tuesday at 1.4376. Weaker than expected wages data, an unexpected CPI dip to a one-year low rate of 2.5% y/y in March, with Q1 inflation undershooting the BoE projection, and now today's underwhelming retail sales report, have collectively weighed on both the pound and UK yields. Reuters reported yesterday that most of its survey respondents still expected, even in light of the inflation data, the BoE to hike the repo rate by 25 bp in May, but with many now expecting that the central bank to accompany such a move by adjusting its forward guidance to a more neutral plane. We concur with this view, with second-round inflationary pressures proving more muted than expected and in light of currency gains over the last several months, which has been slackening the pressure on UK import prices. Cable has been trending higher for a year, and presently looks to be in the early phase of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Initial resistance is at 1.4250, and support is at 1.4145.

    [USD, CHF]
    Another day, another new trend high in EUR-CHF and USD-CHF, with the former this time posting a 39-month peak at 1.1994 and the latter ascending further into three-month high territory. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied. A background support 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 with the La Liberte newspaper this week 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 has settled toward 1.2600 after posting a nine-day low yesterday at 1.2660. The high was seen after the BoC policy announcement yesterday, where rates were left unchanged at 1.25%, as widely expected, and the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD suggests a weakening in the downside trend that's been developing over the last three weeks, from levels near 1.3100.

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