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By XE Market Analysis December 11, 2014 6:35 am
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    XE Market Analysis: North America - Dec 11, 2014

    The dollar rebounded after extending to fresh correction lows. Data misses in Japan and the U.K. helped support USD-JPY and weigh on GBP-USD. A plethora of central bank announcements brought mixed market responses. The NOK dove a 5-year low on an unexpected Norges Bank rate cut, while NZD-USD surged after the RBNZ lifted growth forecasts after leaving policy unchanged. EUR-CHF, meanwhile, fell to 1.2015-17 from levels above 1.2030 in the wake of the SNB announcement of unchanged policy. SNB's Jordan said upward pressure on the franc has "intensified," and that the cap will be enforced with "utmost determination." EUR-USD saw choppy trade centred on 1.2450 after leaving a 10-day high of 1.2495 in Asia. The ECB allotted EUR 129.85 bln in the second TLTRO, below the Bloomberg median, fuelling speculation that the central bank will be forced to full-blown QE. USD-JPY logged a two-week low at 117.43 in Tokyo before recovering to a peak of 118.88. The move was aided by Japanese Oct machinery orders which dove 6.4% m/m, contrary to hopes for modest improvement. Cable saw a 2-week high at 1.5757 in Asia before dropping over 100 pips, making a low at 1.5652. The U.K. Nov RICS house price balance fell to +13%, below the median for 15%.

    [EUR, USD]
    EUR-USD has chopped around the 1.2450 level during the European AM session after leaving a 10-day high of 1.2495 during Asian trade. Movement has mostly been driven by broader oscillations in the dollar. The ECB allotted EUR 129.85 bln in the second TLTRO. This is below the Bloomberg median of EUR 148 bln and the lower than expected uptake will fuel speculation that the central bank will be forced towards fully blown QE and sovereign bond purchases eventually. We remain bearish on the view of diverging Eurozone and U.S. economic growth, with the ECB inching closer to implementing QE. We look for an eventual make move on the July 2012 low at 1.2042 and see recent gains as opportunity to establish a short position. Resistance is marked at 1.2495-1.2500.

    [USD, JPY]
    USD-JPY logged a two-week low at 117.43 during the Tokyo session before recovering the 118 handle and then to a peak of 118.88 during the European AM. The rebound mostly reflected a broader dollar recovery, and was also aided by Japanese Oct machinery orders which dove 6.4% m/m, contrary to hopes for some modest improvement. Fitch Ratings, meanwhile, said it will probably downgrade its Japan rating if the 2015 budget does not offset sales tax delay. Fitch had earlier in the week put Japan's sovereign ratings on Rating Watch Negative (RWN), citing high and rising government debt and increased uncertainty about the authorities' commitment to fiscal consolidation. We see that the overall bias for USD-JPY will remain to the upside. Polls suggest that PM Abe will win this weekend's election, which would give yen-negative "Abenomics" policies a fresh mandate.

    [GBP, USD]
    Cable clocked a two-week high at 1.5757 in Asia before about-turning and dropping over 100 pips to a low at 1.5652, finding a toehold just above yesterday's 1.5647 low. The move mostly reflects a broader dollar rebound, while RICS house price balance for November came in at +13%, below median forecasts for 15%. We continue to class Cable as being in a bear trend, which has been persisting since the July cycle high at 1.7192, having made new trend lows on Friday and again on Monday. Key resistance is marked at 1.5825-26. The 1.5541 trend low marks support ahead of 1.5500, while the August 2013 low at 1.5102 should be in the crosshairs of bears.

    [USD, CHF]
    EUR-CHF traded lower in the wake of the SNB announcement, dropping 1.2015-17 from levels above 1.2030. This brings the rumoured SNB buffer zone between 1.2010 and the 1.2000 franc cap back into the frame. The SNB kept the Libor target range unchanged at 0.00-0.25%. SNB boss Jordan said that upward pressure on the franc has "intensified." The central bank highlighted increased deflation risks and said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary. "Further steps" may include negative interest rates, which SNB member Zurbruegg has recently argued would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. A Bloomberg survey earlier this week found that more than 60% of respondents believe that the SNB will have to use negative interest rates to maintain the cap in the scenario that the ECB commences quantitative easing, while all but one anticipates the SNB to step up interventions to defend the 1.2000 peg.

    [USD, CAD]
    USD-CAD has settled back in the 1.14s after logging a major-trend high at 1.1502. We anticipate further advances above 1.1500, with the CAD likely to trend lower on the back of soft oil prices. Support is marked at 1.1400-05.

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