Home > XE Currency Blog > XE Market Analysis: North America - Dec 11, 2013

AD

XE Currency Blog

Topics7234 Posts7279
By XE Market Analysis December 11, 2013 7:35 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5158
    XE Market Analysis: North America - Dec 11, 2013

    USD-JPY dropped to a fresh correction low of 102.40 in early London trade, reflective of a broader move in the yen, with EUR-JPY and other yen crosses seeing a similar action. EUR-USD is near unchanged versus New York closing levels of yesterday, hovering around 1.3760-70. The pair whipsawed during the London AM, dipping quite sharply to 1.3740 before rebounding in an equally sharp manner to a peak of 1.3773. Focus remains to the upside and yesterday's six-week peak at 1.3795 and the 1.3800 level. The 1.3790-1.3810 region contains strike levels of large options that are expiring this week, according to market talk. News of the bipartisan budget deal in the U.S. inspired a brief dollar gain, but follow-though was limited as uncertainty will prevail until the Congress votes. The key House of Representatives vote will likely take place on Thursday or Friday.

    [EUR, USD]
    EUR-USD's 1.3735-40 area can be considered a strong near-term support, as it has held both yesterday and today. On the topside, yesterday's six-week peak at 1.3795 and the 1.3800 level we have marked as resistance levels. The 1.3790-1.3810 region contains strike levels of large options that are expiring this week, according to market talk. Above here is the 2013 high of 1.3833, and all these levels present the market with a key resistance zone, which we think may sap the momentum out of the still-bullish market. The bipartisan budget deal in the U.S. may invite a firmer bid to the dollar, though uncertainty will prevail until the Congress votes. The key House of Representatives vote will likely take place on Thursday or Friday, according to media reports.

    [USD, JPY]
    USD-JPY dropped to a fresh correction low of 102.40 in early London trade. The move appeared to have been driven by EUR-JPY, which dove and tested its 141.00 level, which is a key near-term support level having marked Monday's low. A similar price action has been since in other yen crosses. This reflected stock market losses in Japan and Asia, reflecting market indigestion at the prospect of Fed tapering, with the yen adhering to its usual correlation in this regard (European stocks fared better, aided by news of the U.S. budget deal). The advent of sustained risk aversion would be the main risk to those anticipating more fundamentally-driven weakness in the currency. In USD-JPY, the current course of yen recovery has us looking at the 102.20-25 support region, which marks trend and 20-day moving average levels. Japanese data today came in near expectations, with the CGPI price gauge coming in at +2.7% m/.m and machinery orders at +0.6% m/m. The Fed's course to tapering and the ECB's refrain from announcing further non-conventional stimulus offers a contrast to the BoJ's committed anti-deflation fighting stance, though stock markets and associated risk appetite will need to remain reasonably buoyant, or at least nothing much worse than neutral, if fresh yen weakness is to be seen.

    [GBP, USD]
    The pound fully entered correction mode today, and is taking a dive after trading at two-year against the dollar and five-year highs against the yen yesterday. GBP-USD trend support at 1.6355 was breached, and 1.6320-25 area is initial support, ahead of the Dec-6 low of 1.6293. This two support points mark out a key support zone. A daily close below here would be bearish signal. Bigger picture, however, and the view remains a bullish one, befitting the U.K. economy's status as one of the fastest growing in the OECD developed nation grouping. Yield differentials should be supportive, with the benchmark 10-year Gilt yield's approach of 3% starting to look almost attractive in a low yielding world, helping return sterling to the 'asset' side of the spectrum, despite the near zero interest rate policy of the BoE.

    [USD, CHF]
    The CHF is likely to remain well supported into next week's FOMC meeting in the U.S. as a significant portion of market participants are anticipating the Fed to commence QE tapering, which in the event may trigger a more sustained period of risk aversion in global financial markets. The ascent of the CHF-JPY cross to a 23-year peak is testament to the strength of the safe haven Swiss currency. USD-CHF, meanwhile, has logged a two-year low to 0.8850, and EUR-CHF a seven month low of 1.2205, which is two big figures above the SNB's 1.2000 limit, so we're still above intervention levels. EUR-CHF support is at 1.2200-1.2205. The breach of the Jun-24 low of 1.2218 yesterday was a bearish development. Initial target is the Apr-21 low of 1.2179. We don't expect any changes from tomorrow's SNB policy review.

    [USD, CAD]
    USD-CAD has settled to lower path, correcting some of the strong gains seen following the recent strong rally that left a new major-trend high of 1.0707 last Wednesday following the BoC announcement and statement, which emphasized the downside risks to inflation. The pair looked to have become a overstretched, and yesterday's breach of former consolidation support at 1.0625-30 is a bearish signal. The 1.0600-05 zone, which encompassed former daily high points that were seen in late November, is now a key support level in play. A consolidation phase with a downward bias looks likely over the coming days with U.S. Fed policymakers having entered the blackout phase ahead of next week's FOMC, which will deprive markets of clues with regard to whether the Fed will commence tapering this month or next..

    Paste link in email or IM