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By XE Market Analysis August 22, 2017 6:39 am
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    XE Market Analysis: North America - Aug 22, 2017

    EUR-USD drifted over 50 pips lower during the London AM session in nearing 1.1750, giving back nearly all of the gain posted yesterday. Much weaker than expected German investor confidence in the latest ZEW survey helped the euro lower, though the common currency had already been under the cosh ahead of the release. The survey showed that the higher value of the euro drove sharply negative readings from banks and German automakers. The report chimes with the ECB policymakers concerns about the recent pace of euro advances. USD-JPY, meanwhile, lifted back to the lower 109.0s after dipping yesterday to a 108.63 low, which by our data is 3 pips above last Friday's four-month low. The lift today came as risk aversion improved somewhat in Asia after an indifferent finish on Wall Street. Cable broke lower after five-session orbit of 1.2900, clocking a six-week low at 1.2825. The pound also logged a seven-year low versus the euro. Sluggish economic performance of the UK relative to its peers, along with the associated Brexit concerns and falling real wages, have been weighing on the pound.

    [EUR, USD]
    EUR-USD drifted over 50 pips lower during the London AM session in nearing 1.1750, giving back nearly all of the gain posted yesterday. The pair was showing a 0.5% loss as of the early PM session in Europe, and was showing a fractional loss on the week so far. Much weaker than expected German investor confidence in the latest ZEW survey helped the euro lower, though the common currency had already been under the cosh ahead of the release. The survey showed that the higher value of the euro, which is trading near 31-month highs versus the dollar, drove sharply negative readings from banks and German automakers. The report, which is not typically a forex market mover, chimed with the ECB policymakers concerns about the recent pace of euro advances, in turn undermining the market narrative about this week's Jackson Hole symposium providing Draghi with a platform to lay the groundwork for QE tapering. EUR-USD has support at 1.1750-53.

    [USD, JPY]
    USD-JPY lifted back to the lower 109.0s after dipping yesterday to a 108.63 low, which by our data is 3 pips above last Friday's four-month low. The lift today came as risk aversion improved somewhat in Asia after an indifferent finish on Wall Street. We still think the bias of the pairing will be to the downside given lingering anxieties about North Korea and the U.S. political situation. This year's Jackson Hole symposium of central bankers, which starts on Thursday and carries on to the weekend, will be a big focus given the path to remove ultra accommodative monetary policy. USD-JPY has support at 108.60-63 (which encompasses the recent lows), and resistance is at 109.60.

    [GBP, USD]
    Cable broke lower after five-session orbit of 1.2900, clocking a six-week low at 1.2825. The pound also logged a seven-year low versus the euro. We continue to take a bearish view of Her Majesty's currency. Slovenian PM Miro Cerar yesterday warned that the Brexit negotiating process "will definitely take more time than we expected," and slammed the British government's paper on potential future customs arrangements as being "not realistic." Aside from Brexit, there remains a degree of political uncertainty following the June elections that left PM May's Conservative Party governing from a greatly weakened position (relying on support form a Northern Irish party), while inflation-adjusted average household incomes are in decline. The UK calendar this week is highlighted by second estimate Q2 GDP data (up Thursday), which is likely to confirm growth at 0.3% q/q, half the Eurozone growth figure for the same quarter.

    [USD, CHF]
    EUR-CHF lifted to a four-session high at 1.1384, extending the recovery from last Friday's three-week low at 1.1259, which was seen after the ECB minutes to the August policy meeting revealed policymaker concern about the pace of recent euro gains. The recovery in the cross reflects a broader rise in the euro into the Jackson Hole gathering (starting Thursday), where ECB's Draghi might lay out the ground plans for a tapering in the QE program. EUR-CHF's price action of late is consistent with the cross having made a return as a "normally" trading pairing over the last month. Assuming the Eurozone economic revival remains on track, which would help quell policymaker angst about euro gains, and assuming the ECB commits to QE policy tapering, we expect the EUR-CHF to recover to the SNB's former floor level at 1.2000.

    [USD, CAD]
    USD-CAD ebbed to an 18-day low at 1.2547 today, despite a 2.5%-odd dive in oil prices. The move reflects a weaker tone in the dollar and recoupment of risk appetite, while markets are also factoring relative outperformance of the Canadian economy, which we expect to come in at 3.7% q/q (saar). We continue to favour the downside in USD-CAD, 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, a slow-go approach to tightening but one that should keep return the Canadian dollar to fairer values, with the drag from historic low oil prices in recent years having now passed.

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