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By XE Market Analysis January 7, 2014 8:04 am
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    XE Market Analysis: North America - Jan 07, 2014

    The dollar is generally little changed versus Monday's New York closing levels. EUR-USD drifted modestly toward the 1.3640-50 area, aided by firm German retail sales and unemployment data. Eurozone HICP dipped to just 0.8% y/y, though this was expected following yesterday's sharp decline in German HICP. The yen weakened moderately during the Tokyo session, which saw USD-JPY lift back above 104.50 after a brief dip under 104.00 during the New York afternoon session. EUR-JPY was also firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having. Elsewhere, GBP-USD recovered the 1.6400 handle after dipping to 1.6376 and AUD-USD dipped to a four-day low of 0.8910.

    [EUR, USD]
    EUR-USD recovered 1.3600 after extending to a new one-month low of 1.3571. 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. There is also a chance that the ECB will announce further stimulus measures at its policy meeting this Thursday. Resistance is marked at 1.3650-50, which encompasses the present position of the 50-day moving average.

    [USD, JPY]
    USD-JPY rebounded back above 104.50 after a brief dip under 104.00 during the New York afternoon session. EUR-JPY was also firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive the yen to fresh lows during the year. The risk to this view would be a sustained bout of risk aversion in global markets, which some think possible giving richly price stock markets and tightening courses of the U.S. and China.

    [GBP, USD]
    GBP-USD recovered the 1.6400 handle after dipping to 1.6376. The softer than expected December PMI data provided a speed bump with regard to U.K. economic expectations, though it doesn't change the overall positive outlook for the economy, and a moderation was to be expected after a period of above long-term trend growth. Cable support is marked at 1.6370, ahead of 1.6345-1.6350, and resistance is at 1.6420. We remain sterling bullish.

    [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 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 1.2350, support at 1.2320 and 1.2300.

    [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-1.0600 levels before steadying back on a 1.06 handle. 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 1.0452). 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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