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By XE Market Analysis January 8, 2014 7:05 am
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    XE Market Analysis: North America - Jan 08, 2014

    The euro came under pressure via EUR-JPY and EUR-USD. The EUR-JPY cross tumbled quite sharply during the European AM session after making a six-day peak of 143.17 in Tokyo trade, falling to a low of 142.20 before finding a toehold. The move seemed incongruous next to solid manufacturing and retail sales data out of Germany, but markets are speculating that the ECB might announce fresh stimulus at its policy meeting tomorrow as disinflation has become a worry for policymakers with Eurozone CPI having dipped to just 0.8% y/y in December. EUR-USD triggered stops though 1.3600, reaching a low of 1.3580. There was also talk of specific EUR-GBP selling following the BoE's quarterly Credit Conditions Survey that found lenders are planning a "significant" increase in both mortgage and business lending in Q1. EUR-GBP tested its six-week low of Jan-2, at 0.8270, while Cable held above 1.6410.

    [EUR, USD]
    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 market speculation that the ECB might announce fresh stimulus at its policy meeting this Thursday as disinflation has become a worry for policymakers (Eurozone CPI dipped to just 0.8% y/y in December). Resistance is marked at 1.3650-60, which contains the present position of the 50-day moving average.

    [USD, JPY]
    Both USD-JPY and EUR-JPY logged a six-day peaks , of 105.12 and 143.17 respectively, before settling lower. The price action brought USD-JPY's five-and-a-half year peak of 105.44, made on Jan-2, back into scope. Data on Monday 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]
    Sterling posted across-the-board gain after a BoE survey found lenders are planning a "significant" increase in both mortgage and business lending in Q1. The survey was the quarterly Credit Conditions poll, which was delayed from last week. GBP-USD reached 1.6431, since ebbing to sub-1.6420 levels, while GBP-JPY logged a six-day peak and EUR-GBP dipped to a three-day low. The survey is good news, especially concerning business lending, which has been a notably missing link in the U.K. recovery so far. Cable support is marked at 1.6400 and 1.6370-75, and resistance is at 1.6450. We remain sterling bullish over the medium term.

    [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, and is closing in on 1.2400, 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 1.2400, support at 1.2370 and 1.2350.

    [USD, CAD]
    USD-CAD has broken sharply higher on a bullish U.S. dollar outlook and weaker Canadian data, underpinned by favourable movement in yield differentials. The pair broke both 1.0700 and 1.0800, taking out its Dec-20 major trend peak of 1.7337 on route. The price action marks a break higher after some pretty choppy price action over the last several of weeks. Resistance can now be expected at 1.0850 and 1.0900. The previous trend peak of 1.0737 and 1.0700 now provide support.

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