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By XE Market Analysis January 6, 2014 7:03 am
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    XE Market Analysis: North America - Jan 06, 2014

    Dollar majors have been narrowly mixed in early-week trade for the most part, though sterling decline following U.K. data and EUR-JPY managed a three-week low of 141.53. USD-JPY, like EUR-JPY, was decline, but modestly so, and the pair has remained above its Friday low of 104.07. EUR-USD recovered 1.3600 after extending to a new one-month low of 1.3571. An early session pop in short-end German yields helped the euro find a footing. EUR-JPY selling during the Tokyo session had earlier weighed on EUR-USD. GBP-USD dipped to a two-week low in the wake of the U.K. service PMI disappointment, which fell to 58.8 from 60.0 to continue the deceleration from October's 16-year peak of 62.0. The pair logged a low of 1.6337, while EUR-GBP rose to a one-week peak of 0.8331.

    [EUR, USD]
    EUR-USD recovered 1.3600 after extending to a new one-month low of 1.3571. An early session pop in short-end German yields helped the euro find a footing. EUR-JPY selling during the Tokyo session had earlier been a factor weighing on EUR-USD. We don't expect EUR-JPY losses to sustain as the BoJ's aggressive policy stance will likely keep the yen in a bigger-picture downtrend, though we should point out that the risk to this view would be a period of sustained stock market losses. We remain bigger-picture bearish on EUR-USD as we have a dollar bullish view in light of a run of mostly firm U.S. data and in the wake of the Fed's QE tapering decision. Resistance is marked at 1.3625 and 1.3650, the latter of which marks the present position of the 50-day moving average.

    [USD, JPY]
    The JPY is moderately firmer on the first business in Japan in a week. EUR-JPY made a three-week low of 141.53, while USD-JPY is lowered versus Friday's New York closing level but has remained above its Friday low of 104.07. The yen's gains correlated inversely with stock market losses, seen in Asia after a lacklustre China HSBC services PMI. We don't expect EUR-JPY losses to sustain as the BoJ's aggressive policy stance will likely keep the yen in a bigger-picture downtrend, though we should point out that the risk to this view would be a period of sustained stock market losses. USD-JPY support is marked at 104.00-104.05, which encompasses the present level of a two-month trend support line. Stronger support is marked at 103.40. Japanese policymakers are effectively 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 dipped to a two-week low in the wake of the U.K. service PMI disappointment, which fell to 58.8 from 60.0 to continue the deceleration from October's 16-year peak of 62.0. The pair logged a low of 1.6337, while EUR-GBP rose to a one-week peak of 0.8331. The U.K. economy had been growing a much quicker pace that historical averages, so some slowing should not be too surprising, and our overall positive outlook remains intact. The bigger picture technical view is one of a flattening trend in Cable, which follows a six-month bullish market. Support is given by a number of previous lows at 1.6315-20, ahead of 1.6300. Resistance comes in at 1.6380 and 1.6400.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9000 and EUR-CHF breached above 1.2300 yesterday for the first time in a month, up from its pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. This reflects an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2320, support at 1.2250 and 1.2220.

    [USD, CAD]
    USD-CAD has seen some pretty choppy price action over the last several of weeks, spiking to a major-trend peak of 1.0737 on Dec-20, subsequently diving to sub-1.06 levels before steadying. 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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