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By XE Market Analysis December 13, 2017 7:25 am
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    XE Market Analysis: North America - Dec 13, 2017

    The dollar recovered its poise during the London AM session after taking a hit during the Asian session on news that a Democratic candidate won a Senate seat in the state of Alabama for the first time since 1992, which was taken as a possible threat to the implementation of the Trump agenda. EUR-USD logged a high of 1.1762, extending a rebound from yesterday's low at 1.1717, before settling to near net unchanged levels around 1.1740. USD-JPY's low was 113.12, with the pair subsequently settling around the 113.35 mark, which is about 15 pips lower versus yesterday's closing levels in New York. The dollar also posted respective one-week and one-month lows versus the Australian and New Zealand dollars, before steadying. The dollar may find some support from the Fed today, we think, as a 25 bp rate hike, which has been fully factored in by markets, will likely be accompanied by sufficiently hawkish guidance to stimulate the odds for a follow-up tightening in March next year.

    [EUR, USD]
    EUR-USD recouped to the mid 1.17s, up from yesterday's low at 1.1717, driven by dollar weakness on news that a Democratic candidate won a Senate seat in Alabama for the first time since 1992. The dollar may find support from the Fed today, as, we think, a 25 bp rate hike, which has been fully factored in by markets, will be accompanied by sufficiently hawkish guidance to stimulate the odds for a follow-up tightening in March next year. EUR-USD has resistance at 1.1767-70, ahead of 1.1814-15.

    [USD, JPY]
    USD-JPY took a 30-pip clobber on news that Democrat Doug Jones won the election for an Alabama Senate seat, the first time there's been a Democratic Senate member from that state since 1992. The market narrative is that this will erode the chances for corporate-friendly legislation in the U.S., with the Republican advantage in the Senate ebbing to 51 to 49 from 52 to 48 (aside from the fact that the election result bods badly for the GOP in the mid-term elections in November 2018)) . USD-JPY's low was 113.12, with the pair subsequently settling around the 113.35 mark, which is about 15 pips lower versus yesterday's closing levels in New York. Technically, the two-we still see the pairing as remaining is in an up phase within what has been a broadly sideways chop around, roughly, 108.0 to 115.00, for eight months now. More of the same looks likely. Resistance comes in at 113.73-75, and support comes in at 113.10 and 112.70. We expect the Fed's expected rate hike today will be accompanied with sufficiently hawkish guidance to firm up the odds for a follow-up rate hike next March (Fed funds futures are discounting about 60% odds for this presently), which would also give the dollar a boost.

    [GBP, USD]
    The pound has risen today after falling for three consecutive sessions versus the dollar. Cable settled around 1.3350 after logging an intraday high at 1.3368 ahead of the release of UK labour data, which had a suppressing impact on Her Majesty's currency as unemployment remained at 4.3%, contrary to expectations for a dip to 4.2%, while the total level of employment dipped for a second consecutive month. Today's gains aside, Cable has been drifting lower since making a 1.3549 high on November 30, which was a two-month peak. We take a bearish view of Cable into the Fed's expected rate hike today, as we expect a sufficiently hawkish tone in the central bank's forward guidance to give the dollar a lift. Brexit-related uncertainty also still prevails, despite last week's breakthrough on divorce terms, as we're still non-the-wiser as to what Brexit will look like -- whether a hard exit or a soft exit -- as the political backdrop has become highly convoluted in the UK. Cable has support is at 1.3300-05, and resistance at 1.3382-85.

    [USD, CHF]
    EUR-CHF has seen volatile price action over the last couple of weeks, having turned lower after several attempts above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We still remain bullish over the medium term, however. Assuming the Eurozone has conquered existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable (the central banks meets on policy this Thursday), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.

    [USD, CAD]
    USD-CAD has settled in the mid 1.28s after logging an 11-day peak of 1.2892 yesterday. The gains reversed nearly all of the sharp losses that were seen on Dec-1 following above-forecast GDP and employment data out of Canada. The BoC's cautious guidance following its policy meeting last Wednesday, when it left its policy rate at 1.0%, as had been widely anticipated, has been weighing on the Canadian buck. In particular, the BoC noted that slack remains in the labour market, despite recent rises in overall employment. We advise following USD-CAD's nascent uptrend for now. Support is at 1.2813-15.

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