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By XE Market Analysis February 10, 2015 6:37 am
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    XE Market Analysis: North America - Feb 10, 2015

    The dollar traded higher during the European AM session. EUR-USD dipped back under 1.1300 amid talk of reserve manager offers, Grexit concerns as the market anticipates tomorrow's meeting between Eurozone finance ministers and Greece, and dollar-favourable yield differentials (now above 162 bp at the 10-year maturity level, up from pre-U.S. jobs report levels near 145 bp). USD-JPY, meanwhile, worked higher to the 119.00 area after breaking through the Tokyo high at 118.66. Sterling logged a two-week low against the euro amid a drop in EUR-USD below 1.13, while Cable has managed lift back above 1.5200 after briefly testing below here amid dollar strength, with the pound finding a bid following an upside surprise in UK manufacturing output data. AUD-USD reversed lower, to the 0.7770 area after lifting above Monday's high during Sydney trade in making a peak of 0.7841, which was seen after soft inflation data out of China, where a decline in January CPI to 0.8% y/y (1.0% expected) boosted PBoC rate speculation.

    [EUR, USD]
    EUR-USD has dipped back under 1.1300 amid talk of reserve manager offers, Grexit concerns as the market anticipates tomorrow's meeting between Eurozone finance ministers and Greece, and dollar-favourable yield differentials (now over 160 bp at the the 10-year maturity level, up from pre-U.S. jobs report levels near 145 bp). Balance of risk remains firmly to the downside for EUR-USD. Yesterday's low at 1.1270 looks vulnerable, while yesterday's high at 1.1359 looks like resistance. We expect the upcoming implementation of the ECB's QE program will grind EUR-USD to fresh lows, toward parity over time. The 11-year low at 1.1098, seen on Jan-26, offers an interim target. Resistance is at 1.1359 and 1.1423 (20-day moving average).

    [USD, JPY]
    USD-JPY worked higher to the 118.75-80 area after breaking through the Tokyo high at 118.66. The market was thing during Asian hours as Tokyo market participation tailed off ahead of Japan's National Foundation holiday tomorrow, though there was reportedly some demand at the fix that helped establish a bid tone in USD-JPY. Friday's four-week peak at 119.22, seen in the wake of the strong U.S. payrolls report, remains in focus. We still that USD-JPY will be biased higher in the bigger picture as 'Abenomics' policies remain alive and well. A Bloomberg survey last week found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. Resistance is marked at 119.22-25 and 119.87-96, support at 118.39-40.

    [GBP, USD]
    Sterling logged a two-week low against the euro amid a drop in EUR-USD below 1.13,, while Cable has managed to rebound to the 1.5230-40 area after briefly testing the waters under 1.5200.. The pound found a bid following an upside surprise in UK manufacturing output data, which came in at 2.4% y/y in January, up on the median for 2.1% and from an upwardly revised 3.0% in November. We expect sterling to appreciate (better in the case against the euro than the dollar) after a solid run of UK data, highlighted by the January PMI surveys that showed all three sectors (manufacturing, construction and services) beating expectations, mostly reversing unexpected weakness in December and pointing to encouraging growth momentum in Q1. Incoming data are expected to continue to paint a similar picture. We are anticipating that EUR-GBP with grind lower an test of 0.7000 in time, with the Jan-26 low at 0.7406 offering an immediate target. Resistance is at 0.7450-60.

    [USD, CHF]
    EUR-CHF is trading lower, back under 1.05 amid a generally softer euro. SNB's Jordan said over the weekend that the central bank is prepared to intervene in EUR-CHF if necessary, that, "We are observing the exchange rate situation as a whole ... If necessary we are active," but, " ... we do not speak about our transactions." He said that the franc remains "clearly overvalued" at around 1.0500, but said refrained to comment on what it considers the preferred franc levels or what it sees as a fair value. An "informed source" of the Tages Anzeiger newspaper last week said that the SNB is initiating a "soft floor" in EUR-CHF at 1.05-1.10. SNB's vice-chairman Danthine in late January that the SNB was still "fundamentally prepared to intervene in the foreign exchange market," and that Singapore's SGD basket policy "deserved closer examination." The SNB was widely reported to have intervened last Thursday from levels near 1.0500..

    [USD, CAD]
    USD-CAD has settle around the 1.25 handle in recent sessions. The two-week low of 1.2351, seen last week, is a key near-term support. Overall, we still see there is more to come in the bull trend. Markets are speculating that the BoC will make another rate cut, and some energy analysts are expecting NYMEX oil prices to trade below the 2009 NYMEX crude low at $40.68 before the bear trend lows itself out, which would further crimp Canada's terms of trade. USD-CAD's August 2009 high at 1.3063 provides a big-picture target.

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