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By XE Market Analysis December 17, 2013 7:11 am
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    XE Market Analysis: North America - Dec 17, 2013

    EUR-USD The main dollar pairings have been languid ahead of tomorrow's FOMC announcement, which of course makes some sense as it's about a 50-50 call on whether the Fed opts to start tapering QE assets. EUR-USD tried to rally following a very strong German ZEW outcome, but managed no more than a 10 pip gain that stalled short of the day's high at 1.3782, before settling to 1.3760. USD-JPY has continued to feel gravitational pull around 103.00. A rebound in the Nikkei failed to inspire selling of the fund-currency yen and the pair remains in consolidation after posting a multi-year high of 103.92 last Friday. Sterling dipped on the U.K. CPI outcome today as it unexpectedly dipped to 2.1% y/y in November, a four-year low. Cable logged a new low for the week at 1.6285 as EUR-GBP lifted toward yesterday's one-month high of 0.8455. Follow-through was limited. The AUD has remained under pressure following the release of the RBA minutes and the government's mid-fiscal update.

    [EUR, USD]
    EUR-USD lacks directional bias into the FOMC announcement tomorrow, and the pair is near net unchanged after giving back an earlier flurry to 1.3782. Good selling interest is reported at 1.3785. A very strong German ZEW survey outcome had little lasting impact beyond a 10 pip pop. Given that it's about a 50-50 call on whether the Fed opts to start tapering QE assets, the main dollar pairings are likely to remain directionless. Technically, EUR-USD's has made a series of rejections levels around 1.3800, making this a psychological resistance level. The double failure above 1.3800 last week painted a technical picture of waning upside momentum, especially with prevailing levels are looking quite stretched above the 50- and 200-day moving averages relative to historical norms.

    [USD, JPY]
    USD-JPY continues to feel gravitational pull around 103.00. A rebound in the Nikkei failed to inspire selling of the fund-currency yen and the pair remains in consolidation after posting a multi-year high of 103.92 last Friday. The pull-back low of 102.64 is marked as a support level, which almost exactly matched the current position of the 20-day moving average and a one-month trend support line. The same trend support now comes in at 102.80. A breach of these levels would present the Dec-11 of 102.15 as the next correction target. EUR-JPY and other yen crosses have been seeing a similar price action. We think the risk is to the downside, as the market will likely hedge bets ahead of tomorrow's FOMC announcement given the risk of a tapering announcement, as in the event this would likely be yen supportive should there be a bout of risk-off positioning.

    [GBP, USD]
    Sterling dipped on the U.K. CPI outcome today as it unexpectedly dipped to 2.1% y/y in November, a four-year low and down from 2.2% y/y in October. Cable logged a new low for the week at 1.6285 as EUR-GBP lifted toward yesterday's one-month high of 0.8455. Follow-through has been limited and we would advise that a bullish view of sterling still remains valid as we see the U.K. economy continuing, for now, as an outperformer in the OECD group. The drop in inflation over the last two months does give the BoE space to pursue its 7% unemployment target, though we're likely to see CPI tick back higher in the coming months as the impact of higher gas and electricity prices has yet to be felt due to the relatively late introduction this year of hikes in power tariffs. Also, today's data showed core CPI ticking higher to 1.8% y/y from 1.7%. Friday's three-week low in Cable, at 1.6262, and the 1.6250-60 area, can be considered support levels ahead of 1.6200.

    [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 high of 1.0669. 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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