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By XE Market Analysis January 6, 2015 6:43 am
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    XE Market Analysis: North America - Jan 06, 2015

    The dollar rebounded from Asian session weakness, which had been led by a big dive in USD-JPY amid sharp equity market declines. A downward revision to Eurozone December PMI data, and a big miss in UK services PMI, prompted EUR-USD and Cable selling. EUR-USD fell back under 1.1900 after peaking out at 1.1968, swinging yesterday's cycle low at 1.1860 back into scope. Cable dropped back below 1.5200 to 1.5183, nearing yesterday's Asian-session nadir at 1.5163. USD-JPY oscillated around 119.00 during the European AM session after diving to a three-week low of 118.65 in Tokyo, two big figures down on Monday's high. EUR-JPY clocked two-month lows. The yen's rally came amid a 3% dive in the Nikkei 225, as per the currency's usual inverse correlation with equity markets during heightened periods of risk aversion. The losses follow the worst day in global equities in 18 months (Bloomberg analytics), with market narratives blaming the continued decline in oil prices, which extended under $50 by the NYMEX futures measure today, as unsettling markets.

    [EUR, USD]
    EUR-USD dropped through Asia lows in London trade following a downward revision in Eurozone PMI data. EUR-JPY has clocked a fresh two-month low under 142.00. The European market was glad to sell the euro into the gains seen in Asia, and follow-through indicates a market very much in bearish mode as markets factor in a Jan-22 announcement of a QE program form the ECB. EUR-USD has fallen near 5% since December highs and rebounds have remain curtailed affairs. Support is at 1.1895-1.1900 and a retest of yesterday's 118.60 low looks likely. Resistance is given by the intraday high at 1.1968.

    [USD, JPY]
    USD-JPY dove to three-week lows under 119.00. Sharp declines in equity markets, and especially an underperformance in the Nikkei 225, which lost over 3% relative to the MSCI Asia Pacific's 1.1% decline, boosted the yen, as per the currency's usual inverse correlation with equity markets during heightened periods of risk aversion. The losses follow the worst day in global equities in 18 months (according to Bloomberg analytics), with market narratives blaming the continued decline in oil prices, which dove under $50 by the NYMEX futures measure, as unsettling markets. USD-JPY dove to a three-week low of 118.65, two big figures down versus Monday's high. EUR-JPY clocked two-month lows. USD-JPY looks set to test 118.00 with the technical picture looking a little more bearish. The 20-day moving average, presently at 119.38, has turned negative sloping in recent days. Support is marked at 118.00 and 117.65, resistance at 119.38-40 and 120.00.

    [GBP, USD]
    Cable dropped back below 1.5200 in the wake of a big UK services PMI miss. The low so far has been 1.5183 and the market looks set to test yesterday's Asian-session nadir at 1.5163. Our long standing target, the August 2013 low at 1.5102, is now in the crosshairs. Much of the downward pressure reflects general dollar strength, as EUR-USD is down quite sharply from London opening levels and EUR-GBP has been unable to hold onto post-PMI release gains. Cable remains in a bigger picture bear trend, which has been persisting since the July cycle high at 1.7192 and which has accelerated in early new year trade. The sharp drop in the UK composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of 1.0%, will strengthen the dovish voices at the BoE's Monetary Policy Committee.

    [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 remains bid after punching out new trend highs above 1.1800 on Monday. Oil prices extended to fresh five-year lows under $50. The August 2009 high at 1.3063 is being talked about as the next big-picture target in markets.

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