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By XE Market Analysis December 16, 2013 7:40 am
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    XE Market Analysis: North America - Dec 16, 2013

    EUR-USD spiked to the upper 1.37s from the early London session low of 1.3736. Good buying was reported in EUR-JPY, and EUR-GBP and EUR-AUD also lifted, the former to a one-month peak of 0.8455. There didn't appear a news or data development that might have prompted the move (Eurozone PMI figures were mixed), though there was talk of bullish research notes in circulation, based on the view that Eurozone banks will need to bolster regulatory capital reserves ahead of the ECB's taking over of bank supervision in November 2014. USD-JPY opened Monday in Asia at 103.25 before deciding to continue the slide from Friday's multi-year high of 103.92, triggering stops through the 103.00 and 102.90 area. A low of 102.64 was seen, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. The pair subsequently recovered 103.00 amid EUR-JPY buying during the European AM. .

    [EUR, USD]
    A bout of general euro outperformance drove EUR-USD upward, with the pair spiking from the early London session low of 1.3736 to the high 1.37s. Good buying was reported in EUR-JPY, EUR-GBP and EUR-AUD. There didn't appear to have been a news or data development that might have prompted the move (Eurozone PMI figures were mixed), though there was talk of a bullish euro view based on expected repatriation flows of Eurozone banks of next year, as some will be preparing for a rise in regulatory capital positions before the October 2014 announcement of results of the ECB's review of Eurozone banks. The ECB is to assume direct regulatory responsibility of banking in November 2014. Nearer term, the market faces strong resistance in EUR-USD at 1.3800 and the year's peak at 1.3832. The double failure above 1.3800 last week, and repeated failures to sustain gains above here in October, makes the 1.3800 level a psychological resistance marker.

    [USD, JPY]
    USD-JPY opened Monday in Asia at 103.25 before deciding to continue the slide from Friday's multi-year high of 103.92, triggering stops through the 103.00 and 102.90 area. A low of 102.64 was seen, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. The pair subsequently recovered 103.00 amid EUR-JPY buying during the European AM. . A breach below 102.60-64 would present the Dec-11 of 102.15 as the next correction target. Lower stock markets today in Asia were a supportive influence for the yen, and funding currencies like the yen typically rebound then there is a whiff of risk aversion in the air. This followed a disappointing flash estimate of the December Markit-HSBC PMI reading for China PMI, and as markets continue to factor in the real risk that the Fed commences taping this week.

    [GBP, USD]
    The pound corrected quite sharply last week after trading at two-year peak against the dollar and five-year highs against the yen. GBP-USD has managed to stabilized back above 1.6300 after leaving a 16-day low of 1.6262 on Friday. Big picture, we expect further advances in sterling, befitting the U.K. economy's status as one of the fastest growing in the OECD developed nation grouping. It will be difficult for U.K. policymakers to compete against the soft currency policies of the likes Japanese policymakers. 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]
    We expect the safe haven Swiss currency to remain broadly underpinned into this 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 has the potential to trigger a more sustained period of risk aversion in global financial markets. USD-CHF resistance is marked at 0.8900-0.8910. EUR-CHF support is at 1.2200-1.2205. The breach of the Jun-24 low of 1.2218 last Wednesday was a bearish development. Initial target is the Apr-21 low of 1.2179. A mixture of trend and consolidation resistance shows up at 1.2230 and 1.2250 ahead of the 20-day moving average at 1.2258.

    [USD, CAD]
    USD-CAD back under 1.0600 after last week's whipsaw 1.0669 higher on Thursday. The pair this remains in correction mode after the sharp three-month rally to 1.0708, see on Dec-6 and which was the highest traded since 2010. Initial target and support is marked at 1.0560, ahead of 1.0550, which roughly markets a series of former daily highs and lows, should be treated as a key risk level. Clear resistance is at 1.0594-1.0600.

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