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By XE Market Analysis December 29, 2014 6:01 am
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    XE Market Analysis: North America - Dec 29, 2014

    The dollar traded slightly lower. EUR-USD lifted to a high of 1.2221 after closing Friday at 1.2175/6, subsequently settling around 1.2200. Markets were at the time of writing waiting for the results of the third and final vote in the presidential election. Cable saw a similar price action to EUR-SUD, as did AUD-USD, which rose to a peak of 0.8162 before settling around 0.8150. USD-JPY initially rallied in Tokyo trade on the back of Nikkei gains, making a peak of 120.60 before stalling and subsequently drifting lower to the lower 1.20s. Trading conditions were thin. In news, Bundesbank head Weidmann repeated his opposition to QE. A Reuters survey found that Japanese companies are expecting that the pace of yen declines will abate during 2015, anticipating that the low will be 125.0 against the dollar and the high will be 112.0. The SNB said that the franc did not trade below the 1.2000 cap on Dec-25, contrary to some reports, reaffirming that the cap is guaranteed at all times.

    [EUR, USD]
    We remain EUR-USD bearish, and look for a move on the July 2012 low at 1.2042. There has been a fresh shift in the dollar's yield advantage with 10-year U.S. T-note yield differential over the equivalent bund has widening to new cycle highs near 165 bp, up from levels around 147-48 bp seen before the Fed announcement on Dec-17. The market, meanwhile, is speculating that the ECB will announce QE at its Jan-22 policy meeting, with concerns about disinflation outweighing the recent improvement in survey data. EUR-USD resistance is marked at 1.2272-75 and 1.2352-55, support at 1.2164 and 1.2100.

    [USD, JPY]
    USD-JPY initially rallied on the back of Nikkei gains, making a peak of 120.60 before stalling and subsequently drifting lower to the low 1.20s. Trading conditions were thin. A Reuters survey found that Japanese companies are expecting that the pace of yen declines will abate during 2015, anticipating that the low will be 125.0 against the dollar and the high will be 112.0. We remain bullish on the back of yield differentials, which the 10-year U.S. T-note yield advantage at new cycle highs above 190 bp versus the JGB equivalent. USD-JPY resistance is marked at 120.82 (Dec-23 high) and 121.85 (trend high), support at 119.47-50.

    [GBP, USD]
    Cable remains in the grip of a being in a bear trend, which has been persisting since the July cycle high at 1.7192. Resistance is now marked at 1.5634 (20-day moving average) and 1.5700, support at 1.5486 and 1.5500. The August 2013 low at 1.5102 should be in the crosshairs of bears. The drop in UK inflation to a six-year low of 1.0% has strengthened the dovish voices at the BoE's MPC.

    [USD, CHF]
    EUR-CHF has established a range below 1.2050 after spiking to a 1.2096 peak Dec-18 after the SNB implemented a negative interest rate of -0.25%. SNB member Zurbruegg recently argued that a negative interest rate would be an effective tool as permanent excess liquidity in the Swiss financial system exceeds 300 billion francs. SNB boss Jordan had said recently that upward pressure on the franc has "intensified," and the central bank said it will enforce the cap with "utmost determination" and is prepared to take further steps if necessary.

    [USD, CAD]
    USD-CAD has settled to a consolidation around 1.1600 amid a backdrop of steadier oil prices. We anticipate that the CAD-bearish narrative, based on weakening oil price trend, is likely to sustain for a time yet. Support is marked at 1.1550-65.

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