Home > XE Currency Blog > XE Market Analysis: North America - Aug 20, 2014

AD

XE Currency Blog

Topics6538 Posts6583
By XE Market Analysis August 20, 2014 6:04 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4496
    XE Market Analysis: North America - Aug 20, 2014

    The dollar extended gains against the euro and yen, among other currencies. EUR-USD has logged an 11-month low of 1.3285 after breaching 1.3300 and last November's 1.3295 low, and USD-JPY spiked to a four-month highs above 103.30. The greenback has been unpinned following net positive U.S. data yesterday and ahead of the FOMC minutes from the late July meeting, due later today, which may show the hawkish voices at the Fed strengthening a little. Eurozone data and news were euro bearish, but didn't have a direct trading impact. Cable bucked the dollar-firming trend as sterling popped higher on the BoE minutes to the early August MPC meeting, which revealed the first vote split since July 2011 with members Weale and McAfferty voting for a 25 bp rate hike. Cable gained over 50 pips in making a high of 1.6682, though subsequently gave back most of this. The dovish majority at the MPC clearly have the ascendency in light yesterday's July inflation data that showed an unexpectedly large dip in CPI to 1.6% y/y from 1.9% and the first negative y/y PPI output price figure of the cycle.

    [EUR, USD]
    EUR-USD logged an 11-month low of 1.3285 after breaching 1.3300 and last November's 1.3295 low. The move reflects broad dollar strength, with USD-JPY, for instance, having concomitantly made new four-moth highs above 103.30. The dollar is unpinned following net positive U.S. data yesterday and comes ahead of the FOMC minutes from the late July meeting, due later today, which may show the hawkish voices at the Fed strengthening a little. French President Hollande also said today that the EUR-USD level remains is in the process of being adjusted, and that the ECB is aware that the euro is overvalued, while Eurozone construction output dropped 0.7% m/m in June after already falling 1.4% m/m in May. The Ukraine situation, meanwhile, along with the impact of sanctions against Russian on the Eurozone economy (Russia is the Eurozone's fourth largest trading partner), and the Eurozone's disinflation problem, should collectively maintain EUR-USD's bearish bias, even if the is Fed taking its time to an eventual policy tightening. We continue to anticipate an eventual test of 1.3000.

    [USD, JPY]
    USD-JPY spiked to a four-month highs above 103.30, reflecting a broad gain in the dollar following net positive U.S. data yesterday and coming ahead of the FOMC minutes from the late July meeting, due later on Wednesday, which may show the hawkish voices at the Fed strengthening a little. We remain bullish, anticipating a move to the April high at 104.13. Bloomberg reported last week that the BoJ officials are considering cutting growth forecast for FY 2014, "according to people familiar with the central bank's discussions," and the JGB 10-year benchmark yield has dipped below 0.50% for the first time in 16 months. USD-JPY support is now marked at 102.90 and 102.43 (200-day moving average). An uncertainty for a bearish yen view is the geopolitical situations in the Mideast and Ukraine, as any significant worsening, to the extent it causes a risk-off theme in global markets, would likely prompt yen gains.

    [GBP, USD]
    Sterling popped higher on the BoE MPC minutes, which revealed the first vote split since July 2011 with members Weale and McAfferty voting for a 25 bp rate hike. Weale had been expected by markets to vote for a hike, but McAfferty was a surprise. Cable gained over 50 pips in making a high of 1.6682, though subsequently gave back most of this in dipping to 1.6636, since settling around 1.6640-50. The meeting obviously occurred before yesterday's release of July inflation data that showed an unexpectedly large dip in CPI to 1.6% y/y from 1.9% and the first negative y/y PPI output price figure of the cycle, and with the dovish majority at the MPC clearly having the ascendency in light of this, we expect sterling's upside potential to be limited. Resistance is marked at 1.6682 (the intraday high) and 1.6700, while the technically-minded will be looking for a close below the 200-day moving average at 1.6677 to affirm potential for 1.6500.

    [USD, CHF]
    EUR-CHF steadier, back above 1.2100, after clocking an eight-month low at 1.2086 on breaching supports at 1.2120 and 1.2100-2105. We expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100, and so have been expecting the cross to base. SNB's Jordan repeated recently that the central bank remains firmly committed to defending the currency cap.

    [USD, CAD]
    USD-CAD broke above 1.0950 on broad-based U.S. dollar buying. The pair had earlier in the week found its feet after dipping to a seven-week low of 1.0860 last Friday. The pair recovered above key support marked by a confluence of the 20-, 100- and 200-day moving averages, contained within 1.0865-1.0885, which suggested that the technical picture was not too bearish. We look for a broadly sideways price action over the coming period -- strong offers are reported into 1.1000 -- but a take a more bullish view in the bigger picture as we expect the U.S. economy to continue to recover.

    Paste link in email or IM