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By XE Market Analysis January 5, 2015 7:11 am
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    XE Market Analysis: North America - Jan 05, 2015

    EUR-USD led a fresh dollar rally, which saw the euro crash below 1.20 and test the June 2010 lows at 1.1873-75. Cable and AUD-USD also declined while USD-CAD rallied to a fresh trend peak above 1.1800 as oil prices sank to new five-year lows. A sharp drop in preliminary German state inflation data for December, which is similar to the picture painted by prelim Spanish data last week, kept the pressure on the euro as this fits the prevailing market narrative of the ECB announcing a QE program on Jan-22. USD-JPY was comparatively stable, lifting from an early Tokyo dip under 120.00, subsequently rising to a peak of 120.64 before ebbing back to near net unchanged levels on the day around 120.40.

    [EUR, USD]
    EUR-USD drifted lower, to the low 1.19s after an early Europe rebound petered out 1.1976. A sharp drop in preliminary German state inflation data for December, which is similar to the picture painted by prelim Spanish data last week, has kept the pressure on the euro as this fits the prevailing market narrative of the ECB announcing a QE program on Jan-22. The Asia-session four-year low at 1.1873, seen after flood of sell-stop orders were triggered below 1.2000, beckons.

    [USD, JPY]
    We remain USD-JPY bullish with 'Abenomics' policies likely to maintain the dollar's yield advantage over the yen, even if Fed tightening prospects remain tentative. USD-JPY support is marked by former range lows at 119.96-120.09, and resistance is marked by recent range highs at 1.2073-82.

    [GBP, USD]
    Sterling dropped on a construction PMI miss out of the UK, sending Cable from 1.5312 to a 1.5294 low, though follow though was limited as the pair has already dropped sharply on Friday and earlier in Asian trade. The Markit construction PMI fell to a new cycle low of 57.6 in December after 59.0 in November. At 57.6, the survey still indicates robust expansion in the sector, though the deceleration since September's 64.2 high has been pronounced. The data follows the unexpected decline in the manufacturing PMI on Friday, which also fell to a three-month low at 52.5. The services PMI will complete the picture tomorrow. Cable remains in the grip of a bear trend, which has been persisting since the July cycle high at 1.7192 and has accelerated in early new year trade. The August 2013 low at 1.5102 has been 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 punched out new trend highs above 1.1800 as oil prices sank to fresh five-year lows under $52. The August 2009 high at 1.3063 is being talked about as the next big-picture target in markets.

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