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By XE Market Analysis April 30, 2015 7:28 am
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    XE Market Analysis: North America - Apr 30, 2015

    The EUR-USD surge continued, though this time gains were driven by across-the-board euro advances, while the dollar itself managed to perk up against some currencies, including sterling, the yen and dollar bloc units. The euro stormed to a new two-month high of 1.1249, buoyed by an above-forecast Spanish GDP number and growing weight to market narrative that the ECB may be obliged to taper its QE program at some point. The euro gained strongly against other currencies. EUR-JPY surged to two-month high of 133.72 and EUR-GBP to a 17-day peak of 0.7267. Elsewhere, AUD-USD has dropped despite EUR-USD gains. A near 3% dive in iron ore futures in the China market today sobered up currency market opinion, together with a plethora of news reports from the commodity sphere saying that the oversupply issue will persist into year-end at least.

    [EUR, USD]
    The EUR-USD surge continued, though this time gains were driven by across-the-board euro advances, while the dollar itself managed to perk up against some currencies, including sterling, the yen and dollar bloc units. The euro stormed to a new two-month high of 1.1249, buoyed by an above-forecast Spanish GDP number and growing weight to market narrative that the ECB may be obliged to taper its QE program at some point. EUR-USD's rally has been concomitant with an eroding dollar yield advantage, which today pushed 170 bp versus levels above 185 bp seen last week, which in turn reflects the sharp dive in Bunds over the last two days. The euro gained strongly against other currencies. EUR-JPY has surged to two-month high of 133.72 and EUR-GBP to a 17-day peak of 0.7267.

    [USD, JPY]
    USD-JPY rebounded from a one-month low of 118.49 after the BoJ lowered both its inflation and growth forecasts for both the current and next fiscal years in its updated median-term projections. The central bank now expects CPI at 0.8% for the fiscal year 2015, down from the 1.0% projection in January, and GDP is now expected at +2.0%, down from the 2.1% previously forecasted. For the 2016 fiscal year, cut its GDP estimation to 1.5%, from the 1.6% in January, while lowering its core CPI forecast for that year to 2.0 percent from January's 2.2 percent projection. The yen weakened on this, with USD-JPY lifting to the 118.80 area from 118.50-60, and EUR-JPY recovering above 132.00 from 131.65. The revised forecasts will keep open the possibility of the BoJ making further stimulus later in the year. USD-JPY Resistance is at 119.16-24, which encompasses the intraday high and the 200-day moving average.

    [GBP, USD]
    Cable left a two-month peak at 1.5498 after yesterday's strong rally. The Feb-26 peak at 1.5552 is the next upside level of note, which is the highest level traded since Jan-2. At same time the pound posted a 10-day low against the euro. Cable's rally from sub-1.46 levels has occurred in little over two weeks. We are cautious. The May-7 UK election should be a consideration given outcome uncertainties and the fact that Cable lost about five points during the final run-in to the last election in 2010. Polls put the Conservatives in the lead, but without an outright majority, which leaves the prospect of a SNP-Labour coalition as the most likely outcome (though Labour have thus far refrained from saying they would do this). Bigger picture, the U.S. economy should grow out of its recent soft patch as one-off impacts (inclement weather, port strikes) fade, and we still think the Fed will be at least six months ahead of the BoE in tightening.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.04s after making a one-month high at 1.0508. This came after the SNB last week expanded the number of groups subject to negative rates on deposits at the central bank, though the latest gain has been a natural euro rally. The central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." SNB Chairman Jordan said last Friday that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD recovered the 1.200 level after logging a three-month low at 1.1914 yesterday. The latest drop extends the sharp declines that have been seen since mid-April from levels near 1.2700, which has followed a run of weaker U.S. data and the BoC's downplaying of the oil price shock on the Canadian economy, which was backed up by $10-odd rise in oil prices. The fall in USD-CAD is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, while the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 is now in play.

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