Home > XE Currency Blog > XE Market Analysis: North America - Dec 30, 2014

AD

XE Currency Blog

Topics6752 Posts6797
By XE Market Analysis December 30, 2014 6:33 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4676
    XE Market Analysis: North America - Dec 30, 2014

    USD-JPY led broader dollar declines, which saw EUR-USD rebound to the upper 1.21s after making a 29-month low at 1.2124. Stop covering in a thin year-end market amplified the magnitude of movements. USD-JPY dove over 100 pips to a two-week low at 119.18, subsequently recovering to the 119.80 area. There is reportedly a big, $5 bln option with a 1.2000 strike that's expiring at the New York cut today, which may be exerting some gravitational pull. Yen buying was seen during the Tokyo session ahead of Japan's three-day holiday, while earlier dive in Europe was largely fuelled by stop covering after recent range lows in the 119.96-120.09 area were breached. As for EUR-USD's rebound, there is conjecture in the media and in circulating analyst notes that 'Grexit' concerns won't cause contagion in the manner seen in 2010 and 2012 due to the ECB's EUR 500 bln ESM safety net. Data releases were mostly second tier. Italian business confidence beat expectations, lifting to 97.5 in November, fitting the pattern seen in other surveys coming out of the Eurozone, though deflation concerns, exemplified by today's -1.1% y/y outcome in Spain's flash CPI estimate, will be the main preoccupation at the ECB's governing council.

    [EUR, USD]
    EUR-USD rebounded from Asia weakness, recovering to the upper 1.21s after making a 29-month low at 1.2124. Stop covering in a thin year-end market amplified the magnitude of movement. There is also conjecture in the media and in circulating analyst notes that 'Grexit' concerns won't cause contagion in the manner seen in 2010 and 2012 as the ECB''s now has an effective safety net in place (in the form of the EUR 500 bln ESM fund). We still remain EUR-USD bearish in the bigger picture, 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 this week 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. This has come with the market speculating that the ECB will announce QE at its Jan-22 policy meeting, with concerns about disinflation outweighing the recent improvement in survey data. Prelim December CPI data out of Spain exemplified this, diving to -1.1% y/y in the EU harmonized figure from -0.5% in November. EUR-USD resistance is marked at 1.2200-21 and 1.2272-75, support at 1.2124-25 and 1.2100.

    [USD, JPY]
    USD-JPY recovered above 119.80 after leaving a two-week low at 119.18. There is reportedly a big, $5 bln option with a 1.2000 strike that's expiring at the New York cut today, which may exert some gravitational pull in the thin year-end spot market. Yen buying was seen during the Tokyo session ahead of Japan's three-day holiday, while the earlier dive in Europe was largely fuelled by stop covering after recent range lows in the 119.96-120.09 area were breached. USD-JPY support is marked at 119.00 and 118.80-82, with former range lows at 119.96-120.09 now marking resistance.

    [GBP, USD]
    Cable remains in the grip of 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 1.5500 and 1.5486. 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.

    Paste link in email or IM