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By XE Market Analysis December 18, 2017 7:33 am
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    XE Market Analysis: North America - Dec 18, 2017

    The dollar has traded mixed in markedly thinned-out conditions as Christmas and year-end holidays loom. EUR-USD rebounded to a high at 1.1798 so far, up on the early Asia-Pacific session low at 1.1738, and reversing about three quarters of the losses the pair saw on Friday (which had been a continued reaction to the ECB's guidance on Thursday). USD-JPY saw some chop, dipping to a 112.44 low in early dealings, recouping to a peak of 112.83 before ebbing back to around 112.50. Japan's Tankan survey on business inflation expectations showed a continued prognosis of benign price pressures, which offset, at least from a BoJ policy-implications perspective, a forecast-beating 16.2% y/y surge in Japanese exports, which is the latest sign that the Japanese economy is getting back on track under the "Abenomics" policy regime, coupled with robust global growth. The pound traded steady-to-firmer so far today. Cable lifted on the coattails of EUR-USD, reversing about a third of Friday's losses in making an intraday peak at 1.3362.

    [EUR, USD]
    EUR-USD rebounded to a high at 1.1798 so far, up on the early Asia-Pacific session low at 1.1738, and reversing about three quarters of the losses the pair saw on Friday (which had been a continued reaction to the ECB's guidance on Thursday). The pair is up from the 1.1733-34 level that was prevailing ahead of last Wednesday's release of softer than expected U.S. CPI data, which was followed up by less hawkish than anticipated Fed guidance, but would need to recover above 1.1834-35 to return to levels that were prevailing just ahead of the ECB's announcement. There is market talk of good selling interest above 1.1800. There is also a relative dearth of maturing option levels of note, being year-end season of low liquidity. We see EUR-USD has remaining in a trading range roughly centred on 1.1700 and 1.1900.

    [USD, JPY]
    USD-JPY saw some chop, dipping to a 112.44 low in early dealings, recouping to a peak of 112.83 before ebbing back to around 112.50. Japan's Tankan survey on business inflation expectations showed a continued prognosis of benign price pressures, which offset, at least from a BoJ policy-implications perspective, a forecast-beating 16.2% y/y surge in Japanese exports, which is the latest sign that the Japanese economy is getting back on track under the "Abenomics" policy regime, coupled with robust global growth. Technically, USD-JPY is amid a broadly sideways chop centred, roughly, between 108.0 to 115.00, which has been persisting for eight months now. More of the same looks likely. Resistance comes in at 113.10, which was a former support..

    [GBP, USD]
    The pound is trading steady-to-firmer so far today. Cable lifted on the coattails of EUR-USD, reversing about a third of Friday's losses in making an intraday peak at 1.3362. The pound is trading slightly weaker versus the euro, and is moderately higher in the case against the yen. We continued to advise caution with regard to sterling, anticipating little scope for a sustained rally, if not a new phase of declines. Most likely the pound will continued to consolidate in 2018 with a 15% discount in trade weighted terms that evolved since the Brexit vote in June 2016. While trade negotiations with the EU for a post-Brexit deal will formerly commence in March, the political backdrop in the UK is likely to continue to inspire uncertainty for investors and business leaders. The prime minister is weakly supported, facing a fractious group of hardline Brexit in her minority government, and there are signs that the main opposition party, Labour, is evolving to a position that may favour remaining in the EU.

    [USD, CHF]
    EUR-CHF has seen choppy 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 bank reaffirmed this commitment at its quarterly policy review last week), we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1620.

    [USD, CAD]
    USD-CAD has settled in the mid 1.28s after rallying from sub-1.2800 levels to a peak of 1.2895 on Friday. Expectations that Republicans will push through the corporate-friendly tax overhaul has given the U.S. dollar a prop, while at the same time there are some concerns about the NAFTA re-negotiation has given the Canadian buck an offered tone. This backdrop offset remarks from BoC governor Poloz last Thursday, when he inspired a spike in Canadian yields by saying that policymakers are increasingly confidence that less stimulus will be needed. USD-CAD has support 1.2800-05, and resistance at 1.2881-84.

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