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By XE Market Analysis August 16, 2017 7:26 am
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    XE Market Analysis: North America - Aug 16, 2017

    EUR-USD tipped back under 1.1700 amid a bout of general euro selling during the European morning. EUR-JPY also fell, despite gains in USD-JPY, and other euro crosses traded lower. There didn't appear to be a specific data or news catalyst, though yesterday's perky U.S. data (retail sales and Empire State index) continued to have some resonance as markets look ahead to the release of the FOMC minutes from the Fed's June policy meeting. Eurozone Q2 GDP was confirmed at the preliminary estimate of 0.6% q/q growth. USD-JPY rallied as European stock markets rallied, a backdrop which enticed yen selling. The pair logged a 12-day peak of 110.94 before a fairly hefty selloff in EUR-JPY put a cap on USD-JPY, which subsequently ebbed to around 110.75. The pound perked up on the solid UK labour report, which revealed an unexpected dip in the jobless rate to a 44-year low of 4.4% and an upward tick higher in average household incomes. Cable rallied by about 50 pips in making 1.2903.

    [EUR, USD]
    EUR-USD tipped back under 1.1700 amid a bout of general euro selling during the European morning. EUR-JPY also fell, despite gains in USD-JPY, and other euro crosses traded lower. There didn't appear to be a specific data or news catalyst, though yesterday's perky U.S. data (retail sales and Empire State index) continued to have some resonance as markets look ahead to the release of the FOMC minutes from the Fed's June policy meeting. Eurozone Q2 GDP was confirmed at the preliminary estimate of 0.6% q/q growth. As for the FOMC minutes, markets will be particularly eager to learn of any signal on the timing for the start of quantitative tightening, and what the Fed thinking is on the persistence of benign inflation data. We expect the minutes will contain things for both dollar bulls and dollar bears, so don't anticipate too much directional potential. The ECB, meanwhile, is likely to remain reluctant to commit to a tapering schedule.

    [USD, JPY]
    USD-JPY rallied as European stock markets rallied, a backdrop which enticed yen selling. The pair logged a 12-day peak of 110.94 before a fairly hefty selloff in EUR-JPY put a cap on USD-JPY, which subsequently ebbed to around 110.75. The recovery in risk appetite, as cooler thinking prevail in the North Korean situation, has been driving yen weakness over recent sessions. We have been advising following the trend for now, while keeping stops tight and a weather eye on geopolitical developments.

    [GBP, USD]
    Sterling has traded firmer following a solid UK labour report, which revealed an unexpected dip in the jobless rate to a 44-year low of 4.4% and an upward tick higher in average household incomes. Cable rallied by about 50 pips in making 1.2903, though has met decent selling above the 1.2900 which has forced a retreat to the 1.2890 area. Sterling is presently showing a 0.2% gain versus both the dollar and euro, and a 0.4% advance on the yen. The pound had been under pressure following yesterday's sub-forecast inflation figures out of the UK. Overall, we remain bearish of the pound. Eurozone Q2 GDP data earlier confirmed the preliminary estimate of 0.6% q/q growth, which is double the UK's growth rate, which is lagging the U.S. pace by a similar margin. Brexit concerns remains a detriment to UK business planning and investment, and economic growth potential.

    [USD, CHF]
    EUR-CHF failed to sustain recovery gains to 1.1500, instead stalling short of the level and then settling in the lower 1.14s. Recent price action seems to affirm a new-found confidence to short the franc, which has hinged on improving sentiment about Eurozone's economy and political viability. Up until recently even the enticement of a -0.75% deposit rate had failed to entice sustained franc shorting, which would be welcome by the SNB, which has long-since battled what it characterizes as a "significantly" overvalued currency. We are looking for EUR-CHF to eventually "close the gap" by returning to the 1.2000 level, which had been the SNB's floor until abandoning it in January 2015.

    [USD, CAD]
    USD-CAD logged a fresh one-month peak yesterday at 1.2778, extending a two-week rebound phase following a firmer set of U.S. data on Tuesday. Softer oil prices this week have also helped underpin the pairing. We still favour the downside, overall, anticipating the BoC to make a second 25 basis point rate hike in October, which would take the policy rate to 1.00%. We see two more 25 basis point rate increases next year.

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