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By XE Market Analysis February 21, 2014 7:04 am
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    XE Market Analysis: North America - Feb 21, 2014

    We saw only mild yen weakness following a 2.8% surge in the Nikkei, a brief sterling wobble following disappointing U.K. retail sales, fresh highs in USD-CAD, but all occurring in pretty quite trade ahead of the G20 meeting. EUR-USD flat-lined in the low 1.37s. USD-JPY drifted to a high of 102.60, but lacked the impetus to tackle Wednesday's three-week peak at 102.74. The yen's weakness and the Nikkei's surge was partly aided by the BoJ minutes to the January 21-22 that showed members decided there is a need to emphasize that its QE program is not limited to a two-year timeframe. Cable rebounded after making a eight-day low of 1.6612 following a sub-forecast -1.5% m/m retail sales figure out of the U.K. USD-CAD extended to a fresh high above 1.1150, continuing the steady climb that's been ensuing after the pair surged through resistance is at 1.10130-1.1050 on Wednesday.

    [EUR, USD]
    EUR-USD has been flat-lining in the low 1.37s into the G20 meeting, with the market settling after correcting to a 1.3685 low yesterday. We anticipate further EUR-USD weakness. Eurozone PMI data this week showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly against expectations for an ongoing improvement. This backdrop should ensure that the possibility of introducing a negative deposit rate is a topic in ECBspeadk into the March policy meeting. Technically, the EUR-USD picture is bearish, particularly if we close out the week under 1.3700-1.3725. The two-week run higher to the Tuesday peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period, which had been associated with declining upside momentum following a six-month rally phase.

    [USD, JPY]
    Mild yen weakness was seen as stock markets recovered poise in Asia, particularly the Nikkei, which closed with a 2.9% gain. The BoJ minutes to the January 21-22 showed that members decided that there is a need to emphasize that its QE program is not limited to a two-year timeframe. USD-JPY drifted to a high of 102.60, but lacked the impetus to tackle Wednesday's three-week peak at 102.74. In the bigger picture, there is little directional impetus in USD-JPY now. BoJ policy would favour continued weakness, but the threat of China slowdown and its negative consequences on global stock markets is an offsetting yen-supportive force. Resistance is marked at Wednesday's three-week peak at 102.74, ahead of 103.00-103.10, which encompasses the 50-day moving average. Support is at 102.00 and 101.66, ahead of major support at 100.00-100.63, the latter of which is the 200-day moving average.

    [GBP, USD]
    Cable rebounded after making a eight-day low of 1.6612 following the sub-forecast retail sales figure out of the U.K., which came in at -1.5% m/m. Sell stops were triggered at various points, particularly through 1.6625, which was yesterday's low. Sterling quickly rebounded to near net unchanged levels around 1.6670. Good buying interest is seen into 1.6600, while short-term speculative accounts won't want to be running open positions into the G20 gathering. We still favour the downside in Cable. The unexpected pop in unemployment to 7.2% from 7.1% and the dip in January CPI to a new cycle low of 1.9% y/y supports the BoE's prevailing dovish policy stance. The exceptionally bad weather in January and February can also be expected to shave the Q1 GDP growth outcome. Cable support is at 1.6600, and resistance is marked at 1.6700-10 and 1.6740.

    [USD, CHF]
    EUR-CHF has steadied around 1.200 after trading here on Thursday for the first time since Feb-5 as risk aversion stepped up following a disappointing China PMI report for February. The break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope. SNB-speak this month reaffirmed the strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD extended to a fresh high above 1.1150 in London AM trade, continuing the steady climb that's been ensuing after the pair surged through resistance is at 1.10130-1.1050 on Wednesday following weak Canadian data. The threat of China slowing down is also weighing on the commodity currency, while the upcoming Canadian releases of CPI and retail sales are both expected to give more fodder to CAD bears. The bigger picture technical picture isn't too clear, as the prevailing rise in levels is coming with momentum indicators pointing in the other direction. Big resistance levels now loom, marked by 1.1200 and the Jan-31 major-trend peak at 1.1224.

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