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By XE Market Analysis December 11, 2018 7:26 am
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    XE Market Analysis: North America - Dec 11, 2018

    The Dollar traded moderately softer amid a backdrop of rebounding global stock markets, and was showing losses of between 0.2% and 0.5% versus the Yen, Euro and Sterling heading into the New York interbank open. The Pound managed to find a better footing after dropping sharply yesterday, recouping about a third of the lost ground. Cable printed a recovery high at 1.2639, up from yesterday's 18-month low at 1.2706, before settling around the 1.2610-20 area. The UK currency remained down by 0.8% on the week, and by 2.3% from month-ago levels. Market narratives attributed the move to remarks by Ireland's Foreign Minister Coveney who said that the EU could provide some clarity on the Irish border backstop issue as having been a buying cue. But, he also emphasized that the legal text of the Withdrawal Agreement will not change, despite UK Prime Minister May's apparent plan to win a concession here. May is meeting EU leaders today. It's hard to see what concessions May could obtain that will make any difference in the UK's parliament. Elsewhere, EUR-USD recovered to the upper 1.1300s, extending a rebound from yesterday's low at 1.1350 but remaining comfortably below yesterday's three-week high at 1.1442, while USD-JPY has settled in the lower 113.0s after capping out at a one-week high yesterday at 113.36. Stock markets have found a footing on news that the U.S. and China are talking, though sentiment remains fragile. The Bank of Indonesia reportedly intervened, buying the Rupiah and selling Dollars today.

    [EUR, USD]
    EUR-USD has recouped to the upper 1.1300s, extending a rebound from yesterday's low at 1.1350 but remaining comfortably below yesterday's three-week high at 1.1442. The pair has been in a bear trend since April, although downside momentum has abated in recent weeks, gaining amid a soft Dollar profile as Fed policy expectations are recalibrated. We still take an overall bearish view of the pairing. The U.S. economy remains strong, even if the Fed's tightening course is heading for a pause, while conviction for eventual ECB tightening has concurrently faded with the Eurozone economy losing momentum. The Eurosceptic populist movement gripping parts of the Eurozone, to which Italy's budget-planning woes and the Brexit mess are symptoms, also remains a concern. EUR-USD has resistance at 1.1406-08, and support at 1.1350.

    [USD, JPY]
    USD-JPY has settled in the lower 113.0s after capping out at a one-week high yesterday at 113.36. The pair is roughly near the midway point of a choppy, sideways range that's been unfolding since early October, both underpinned by fundamentals and limited by period bouts of intense risk-off trades, which generate safe haven demand for the Yen. Stock markets today in Asia have been in a state of cautious advance, on news of talks between Chinese Vice Premier Liu He and U.S. Treasury Secretary Mnuchin. But S&P 500 futures are down 0.3% in overnight trading, more than wiping out yesterday's Wall Street gain. Markets are also fretting about the credibility and viability of UK Prime Minister May's plan to gain some sort of guarantee from the EU that there will be an end-date to the backstop on the Irish border, preventing the UK becoming perpetually stuck in the EU, when EU leaders have made quite clear that they won't renegotiate the withdrawal agreement, than the best deal is on the table. USD-JPY has support at 112.93-95, and resistance at 113.34-35.

    [GBP, USD]
    Sterling has found a better footing today, recouping about a third of the sharp declines seen yesterday. Some market narratives are pointing to remarks by Ireland's Foreign Minister Coveney who said that the EU could provide some clarity on the deal as having been a buying cue. But, he also emphasized that the legal text of the Withdrawal Agreement will not change, despite UK Prime Minister May's apparent plan to win a concession here. Coveney he also said that Dublin is now "taking actions to ensure if necessary we will be ready on March 29 for Britain to leave the EU without a deal." The plans include accelerating the recruitment of 1,000 customs officials and veterinary inspectors. Overall, it's hard to see what concessions May can obtain, other than on the backstop, that will make any difference in the UK's parliament. Cable printed a recovery high at 1.2639, up from yesterday's 18-month low at 1.2706, and has since settled around the 1.2610-20 area. The pound remains down by 0.8% on the week so far, and is down by 2.3% from month-ago levels.

    [USD, CHF]
    EUR-CHF dropped sharply yesterday to a two-and-a-half month low at 1.1235, breaching support at 1.1260-61 on route. The losses reflect Brexit-related angst after UK Prime Minister May postponed the parliamentary vote on the EU Withdrawal Agreement, which generated confusion and increased the perceived risk of a hard, no-deal Brexit scenario. This weighed on both the Pound and the Euro while reviving the Franc's historic role as a safe haven. The SNB conducts its next quarterly policy review this week (Thursday). The central bank has been continuing to tread carefully amid heightened uncertainty about the economic outlook, geopolitical risks and protectionist threats. Recent market volatility and Brexit risks will do little to change the SNBs stance, and we expect the central message to remain that the situation remains fragile and the currency "highly valued." So the SNB widely expected to keep policy unchanged at December meeting while continuing to focus on a negative rate policy and ad hoc currency intervention. Under the circumstances, rate hikes are unlikely to be on the agenda for a long time to come.

    [USD, CAD]
    USD-CAD has remained buoyant but below last week's 18-month high at 1.3445. A rebound, or at least steadying, in oil prices after OPEC agreed on a 1.2 mln barrel per day output cut, along with Friday's sub-forecast U.S. jobs report, have curtailed USD-CAD's upside momentum. Overall, we continue to take a bullish view. The pair has resistance at 1.3445-50, and support at 1.3347-50.

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