Home > XE Currency Blog > XE Market Analysis: North America - Jan 08, 2019

AD

XE Currency Blog

Topics6376 Posts6421
By XE Market Analysis January 8, 2019 7:05 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4368
    XE Market Analysis: North America - Jan 08, 2019

    The Dollar has traded moderately firmer against most currencies. The main exception was the Canadian Dollar, which outperformed on the back of continued firmness in oil prices. USD-CAD, now in its fifth consecutive day of descent, posted a one-month low at 1.3267. The USD index (DXY), meanwhile, recovered over half of yesterday's loss in printing an intraday high at 95.96. EUR-USD concurrently pegged a low at 1.1433, which was seen after an unexpected m/m contraction in November German industrial production, which fell by 1.9% m/m. The pair came under fresh pressure following the subsequent release of an underwhelming Eurozone ESI economic confidence report, which fell to a 107.3 in the December headline reading, the worst in nearly two years, though the earlier low was left untroubled before the pair recouped to the 1.1450 area. USD-JPY posted a six-day high at 109.08 before correcting back to near net unchanged levels near 108.70. Stock markets in Asia and Europe rose, but the risk-on spirit was somewhat lacklustre, with buy-side participants seemingly non-committal for the moment, waiting on concrete developments from the U.S.-China trade negotiation. The upcoming releases of the latest JOLTS and consumer credit reports likely to affirm a U.S. labour market in rude health.

    [EUR, USD]
    EUR-USD pegged a low at 1.1433, which was seen after an unexpected m/m contraction in November German industrial production, which fell by 1.9% m/m. The pair came under fresh pressure following the subsequent release of an underwhelming Eurozone ESI economic confidence report, which fell to a 107.3 in the December headline reading, the worst in nearly two years, though the earlier low was left untroubled before the pair recouped to the 1.1450 area. There is a lack of commitment in markets presently as buy-side participants look for concrete signs of a breakthrough in U.S.-China trade talks, and for the partial government shutdown to come to a resolution. EUR-USD is back to near net unchanged levels from both week-ago levels and on the year-to-date comparison. We have shifted to a neutral view of the Dollar after being bullish for much of 2018, based on the view that U.S. monetary policy had ceased to be a support, with Fed fund futures having now priced out further tightening while pricing in a rate cute at the 18-month horizon. On the Euro side of the coin there are increasing signs of flagging economic growth momentum. We see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a more neutral Fed policy stance. Support comes in at 1.1404-05.

    [USD, JPY]
    USD-JPY lifted back toward the mid 108.00s after printing a low at 108.02 during the Tokyo session. Friday's low at 107.82 was left untroubled. Tempered remarks from Fed's Powell have pushed U.S. Treasury yields lower, despite the strong jobs report on Friday, which has in turn led to a broad offered tone on the Dollar. USD-JPY has support at 107.80-82, and resistance at 108.63-65.

    [GBP, USD]
    Cable has ebbed back to the mid 1.2700s after printing a nine-day peak at 1.2798 at the London interbank open. The high extended the recovery from the 21-month low that was printed at 1.2455 last week. The UK economy is likely to remain in a relative funk, at risk of seeing growth turn negative this quarter depending how the European and global economies hold up, and depending how Brexit unfolds. This should leave the Pound with an overall flat-to-heavy bias in trade-weighted terms. Parliament will vote on the deal next Tuesday, according to government sources cited by the BBC. It's looking highly probable that the Brexit deal will be voted down. Of all the possible scenarios at point that next Tuesday's vote rejects May's deal, out best guess is that a new EU referendum will be the path of least resistance, despite elevated media talk and preparations for a no-deal Brexit scenario. We anticipate that the Pound will remain a sell-into-gains trade for now. Cable has support at 1.2709-10, and resistance at 1.2800.

    [USD, CHF]
    EUR-CHF has ebbed to the lower 1.1200s. The cross had last week punched out a four-month low at 1.1184, which was seen as the Swiss franc picked up safe haven demand amid a bout of turmoil in global markets. The SNB remained firmly on hold at its quarterly policy meeting last month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD is now in its fifth consecutive day of descent, breaking rank with other dollar pairings, posting a one-month low at 1.3267. The pair has since lifted to the 1.3290 area. Recent strong gains in oil prices have supported the Canadian currency. USD-CAD's early December low at 1.3160 provides a downside waypoint. The BoC meets on policy tomorrow, where we expect no change to the current 1.75% setting for the policy interest rate amid a slowing economy, moderating inflation pressures and the hefty downside risk posed by weak oil prices to real sector growth. The central bank will also publish its Monetary Policy Report, which will contain a detailed account of their growth and inflation projections. The Business Outlook Survey suggests the growth outlook may be a bit less upbeat due to an expected drag from oil producers and related industries in the prairies.

    Paste link in email or IM