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By XE Market Analysis December 21, 2018 7:09 am
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    XE Market Analysis: North America - Dec 21, 2018

    The Dollar has traded moderately firmer, recouping some of the lost ground seen during the midweek, while a concurrent theme has been a broader correction in the Euro, which corrected after outperforming yesterday. EUR-USD ebbed to the lower 1.1400s, putting in a little distance from the six-week high printed yesterday at 1.1485. EUR-JPY and other Euro crosses also saw an abatement. USD-JPY and Yen crosses, meanwhile, have steadied above the trend lows that were seen yesterday. USD-JPY re-established levels above 111.00 after the pair saw a three-month low yesterday at 110.81. EUR-JPY and AUD-JPY are also up from respective seven-week lows. Risk aversion remained the dominant theme in equity markets in Europe and Asia following another negative closing on Wall Street on the familiar mix of the U.S. v China standoff and concerns about slowing global growth have been joined by the risk of a partial U.S. government shutdown. S&P 500 futures also declined by nearly 0.5% (as of the early European PM). The S&P 500 index is down 4.8% on the week. Sterling has become net directionally dormant following recent Brexit-related volatility, with the UK Parliament now in recess until the new year and London interbank markets thinning out into the Christmas break. Cable has become entrenched around 1.2600-1.2700, down about 6% year-to-date, after printing a 20-month low at 1.2476 last week.

    [EUR, USD]
    EUR-USD has settled to the lower 1.1400s, consolidating at lower levels after rallying every day this week, the biggest advance of which was seen yesterday as the pair reached a six-week high at 1.1485. The Dollar traded to lower ranges against most currencies this week as markets adjusted to a lower Fed tightening trajectory, as signalled at the conclusion of the FOMC meeting yesterday (even though the central bank's refrain from indicating a pause in the rate hike cycle sparked equity market losses). There has also been a degree of Euro outperformance, concomitantly with a rally in Italian assets on the back of a credible, Brussels-appeasing budget proposal, which has been tonic for the common currency. EUR-USD's November-7 peak at 1.1500 provides a near-to target. In the bigger view, we see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a lower Fed tightening trajectory. Support comes in at 1.1439-40 and resistance at 1.1500.

    [USD, JPY]
    USD-JPY posted a seven-week low at 111.67 as the Yen outperformed amid a risk-off backdrop, with stock markets in Asia and Europe tumbling and S&P 500 futures showing a decline of over 0.5%, building on the closing losses seen on Wall Street yesterday after the Fed refrained from signalling a pause in its tightening cycle. The BoJ left rates on hold and also sounded cautious, as expected, which had little bearing on markets. Bigger picture, USD-JPY has been oscillating in a broadly sideways range centred around 112.50-113.00 for over two months now. The range lows at 111.37-40 are a key support. We are bearish and anticipate a break of this support on the view that global stock markets will entered a bear phase, correction after a near decade winning streak as the era of ultra-accommodative monetary policy unravels.

    [GBP, USD]
    Sterling has become net directionally dormant following recent Brexit-related volatility, with the UK Parliament now in recess until the new year and London interbank markets thinning out into the Christmas break. Yesterday's much stronger than expected UK retail sales and the widely expected no-change policy decision by the BoE cast little net impact. The parliamentary vote on the Brexit deal and outline for a future relationship will take place in the week of January 14, before the legislated deadline of January 21. Our best guess remains that Parliament will vote down the deal and, of all the possible scenarios at that point, that a new EU referendum will be the path of least resistance. We see potential for the pound to rally as we think a no-deal Brexit scenario will be avoided. Cable has entrenched around 1.2600-1.2700 after printing a 20-month low at 1.2476 last week. Support comes in at 1.2596-1.2600, and resistance at 1.2687-90.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.1300s. The cross remains comfortably above the two-and-a-half month low seen last Tuesday at 1.1225. The SNB remained firmly on hold at its quarterly policy meeting this month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD has drifted to a narrow range just under 1.3500 after logging an 18-month high at 1.3530 yesterday. While the Fed has shifted to a lower tightening trajectory, oil prices and other industrial commodity prices have tumbled to fresh trend lows this week on global growth concerns. This backstop, which looks likely to sustain well into 2019, should keep USD-CAD bias towards the upside. Support comes in at 1.3420-13. The 2017 high at 1.3793 provides and upside waypoint.

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