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By XE Market Analysis January 2, 2014 7:59 am
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    XE Market Analysis: North America - Jan 02, 2014

    The dollar firmed during the European AM session. USD-JPY edged out a new five-year peak of 105.44, which is three pips above last week's high, while EUR-USD dipped under 1.3700, making a low of 1.3684. GBP-USD dropped over 70 pips from a fresh two-year high of 1.6603. There didn't appear to be any fresh factors driving the market, aside from a USD bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed QE tapering decision. There were a flurry of PMI data releases today, where were mixed. The euro briefly rose following better than expected Spanish and Italian PMI data, but this was offset by a dip n French PMI, while the overall final Eurozone reading confirmed the 52.7 flash estimate. U.K. PMI unexpectedly dipped. In the Asia-Pacific region we saw weaker than expected official PMI data out of both China and Australia today (51.0 and 47.6 respectively). Japan's BoJ governor Kuroda reaffirmed in an interview with the Yomiuri newspaper that the central bank remains committed to driving CPI to 2% target, and that to this end it won't necessarily limit or scale back its stimulus program at the end of the originally delineated two year period .

    [EUR, USD]
    The dollar firmed during the European AM session. EUR-USD dipped under 1.3700, making a low of 1.3684. There didn't appear to be any fresh factors driving the market, aside from a USD bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed QE tapering decision. The bigger picture has been one of a flatting trend, with implied risks of a sustained correction. The euro briefly rose following better than expected Spanish and Italian PMI data, but this was offset by a dip n French PMI, while the overall final Eurozone reading confirmed the 52.7 flash estimate. The repeated failures to hold gains above 1.3800 over the last two months was reflective of this. We target 1.3600.

    [USD, JPY]
    USD-JPY edged out a new five-year peak of 105.44, which is three pips above last week's high. This most reflected dollar strength, and the yen in fact trader higher against the euro. Japan's BoJ governor Kuroda reaffirmed in an interview with the Yomiuri newspaper that the central bank remains committed to driving CPI to 2% target, and that to this end it won't necessarily limit or scale back its stimulus program at the end of the originally delineated two year period. Japanese markets will remain closed until Monday. We expect the yen to remain on a weakening path during the early part of 2014. Japanese policymakers are pursuing a weak currency and there will be market concerns about the impact of the planned 8% rise in sales tax next April, to which the BoJ may offset this by making further liquidity provisions. At its December meeting , the central bank maintained monetary policy unchanged, reaffirming its commitment to expand the monetary base by an annual 60-70 tln yen.

    [GBP, USD]
    GBP-USD dropped over 70 pips from a fresh two-year high of 1.6603. .The pound had already been ebbing when the unexpected dip in the U.K. December manufacturing PMI hit the headlines, with the report highlighting an abatement in the rate of expansion in export orders as a consequence of currency strength. We mark Cable support at 1.6540, ahead of 1.6500. The pound has been supported in recent weeks by differentials, with U.K. yields rising quicker than other G7 yields following a run of impressive data. We view today's PMI outcome as being a speed bump.

    [USD, CHF]
    EUR-CHF has remained comfortably above 1.2200. The cross had breached above 1.2200 ahead of the Christmas/new year holiday period, recovering from pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. The gain had reflected an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commencement QE tapering. Resistance comes in at 1.2280, marks a series of former lows seen between October and November. Support is at 1.2220 and 1.2200.

    [USD, CAD]
    USD-CAD has seen some pretty choppy price action over the last coupled of weeks, spiking to a major-trend peak of 1.0737 on Dec-20, subsequently diving to sub-1.06 levels before recovering the 1.0700 level once again. Much of the volatility is down to thin, year-end market conditions. Bigger picture, the pair has been looking stretched technically, with prevailing levels having deviated above the 200-day moving average by a comparatively wide margin by historical standards (the average is presently situated at 1.0440). This conviction may have been strengthened by the repeated rejections from levels above 1.0700 over the last three weeks, and we may see a period of price stasis or a deeper correction over the coming weeks. Support is suggested by the Dec-12 low of 1.0561 and the 1.0550 level, between which are encompassed a multiple of former daily lows and daily highs that were recorded over the last six-months.

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