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By XE Market Analysis February 4, 2019 7:11 am
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    XE Market Analysis: North America - Feb 04, 2019

    The Dollar has traded moderately firmer, surpassing the highs seen on Friday against the Yen and Australian Dollar, among other currencies, though remaining below the highs seen on Friday against the Euro and Sterling, among others. Friday's slew of firmer data out of the U.S. has continued to underpin the greenback, offsetting the Fed's hawkish-to-neutral shift in policy stance and inviting narratives asserting that the Fed was too early in hitting the pause button. EUR-USD printed a low of 1.1438, which is 4 pips shy of Friday's low. USD-JPY, meanwhile, saw a 10-day high at 109.92. Yen underperformance has been a side theme, with EUR-JPY and AUD-JPY lifting to near five- and seven-week highs, respectively. Sterling came under modest pressure, with Cable edging out a new intraday low at 1.3044 and EUR-GBP whittling out an intraday high at 0.8772. The ongoing implacability of the EU against the UK government's desire to replace the Irish backstop with an "alternative arrangement" has weighed on Her Majesty's currency, while the UK's January construction PMI came in much worse than expected, at 50.6, down from 52.8 in the month prior. USD-CAD remained heavy, but above Friday's three-month low at 1.3068. The Canadian Dollar has been underpinned by the near 7% rally in oil prices over the last week, which has extended the year-to-date advance to over 22%.

    [EUR, USD]
    EUR-USD has consolidated moderately lower on the back of modest Dollar outperformance, which has been seen since the release of strong U.S. data on Friday (employment, ISM, construction, among other items). The pair drifted under 1.1400, coming within a few pips of Friday's low at 1.1434, extending a correction from last week's three-week high at 1.1514, which was seen in the wake of the Fed's hawkish-to-neutral shift last Wednesday. We expect EUR-USD to see further downside. Resistance at 1.1470-72, and support at 1.1420.

    [USD, JPY]
    USD-JPY printed a 10-day high at 109.92, while EUR-JPY and AUD-JPY are trading near five- and seven-week highs, respectively. The Yen has been underperforming relative to the other main currencies in the wake of the strong U.S. jobs report on Friday, and slew of other mostly positive data (ISM, construction, Michigan, wholesale), and consequential lifting of animal spirits in equity markets. The Japanese currency's proxy role as a safe haven often sees the yen correlate inversely with global stock market direction. USD-JPY's January highs at 110.00-02 provide an upside waypoint for the bullish. Support comes in at 108.80-82.

    [GBP, USD]
    Sterling has come under modest pressure, with Cable edging out a new intraday low at 1.3050 and EUR-GBP whittling out an intraday high at 0.8771. The ongoing implacability of the EU against the UK government's desire to replace the Irish backstop with an "alternative arrangement" has weighed on Her Majesty's currency. Both the January manufacturing and construction PMI surveys (respectively released last Friday and today) have painted an ominous picture of Brexit uncertainty directly leading to slowing momentum in the UK economy. This backdrop should keep the pound on a downward tack for now, though there is potential for the currency to rally should a no-deal Brexit be concretely rule out (which may not be for some time yet). Cable has support at 1.3043-45.

    [USD, CHF]
    EUR-CHF has settled near the 1.1400 level, holding below last week's 11-week high at 1.1429. The cross has been going through phase of relatively high volatility, which has produced several bouts of pronounced underperformance in the Swiss franc, which have often been accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said recently that "current monetary policy is the right one and we will continue to with it for some time." He said that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario. SNB vice president, Zurbruegg, also said last month that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate."

    [USD, CAD]
    USD-CAD has remained downwardly mobile, with the Canadian Dollar benefitting from recent strong gains in oil prices. The pair printed a three-month low at 1.3068 on Friday, with subsequent rebounds having stalled out above 1.3100. This comes with oil prices having rallied by nearly 7% over the last week, extending the year-to-date advance to over 22%. This is a boon to Canada's terms of trade. USD-CAD has resistance at 1.3110, and support at 1.3065-67.

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