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By XE Market Analysis January 9, 2014 6:36 am
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    XE Market Analysis: North America - Jan 09, 2014

    The euro rebounded moderately amid the final countdown to the ECB announcement and press conference. EUR-USD made a 50-pip-plus run high from Asian lows on a pre-ECB announcement bout of position squaring as the risk of a dovish press conference has been discounted by the euro's decline over the last few sessions. The run higher stalled around 1.3620. Much stronger than expected Eurozone ESI economic confidence only had a fleeting impact. USD-JPY settled to consolidation around 105.00, not far from its five-year peak of 105.44. BoJ member Shirai said today that it would be possible to aim for the 2.0% inflation target at slower pace, though this didn't stir markets as it has become evident that the objective will take longer than the central bank envisaged when it embarked on this course last April. Sterling was steady, with Cable posting about a 30 pip range around 1.6450-60. The U.K. trade report for November wasn't a market mover, and the BoE MPC is widely expected to announce unchanged policy.

    [EUR, USD]
    EUR-USD extended to a five-week low of 1.3553 after the London close yesterday before recovering a 1.36 handle. 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 today, or at least that Draghi will make a dovish press conference statement (which is what we expect), as disinflation has become a worry for policymakers (Eurozone CPI dipped to just 0.8% y/y in December). Resistance is marked at 1.3620-25.

    [USD, JPY]
    USD-JPY has settled to consolidation around 105.00, not far from its five-year peak of 105.44, which we expect to fall in the not distance future. BoJ member Shirai said today that it would be possible to aim for the 2.0% inflation target at slower pace, though this didn't stir markets as it has already become evident that the objective will take longer than the central bank envisaged last April, when it embarked on this policy course. We expect BoJ policy will continue to drive the yen to fresh lows during the year. Data this week showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the central bank's reflationary policy is having. The BoJ is targeting a monetary base to Y270 tln by the end of 2014..

    [GBP, USD]
    We remain sterling bullish, though the 1.6500-1.6510 zone in Cable is a key resistance. The BoE MPC concludes its January policy meeting today, widely expected to leave the repo rate at 0.5% and the QE total at GBP 375 bln. The central bank won't likely issue a statement, as is normally the case following unchanged decisions, which would render the meeting as a non-event for markets until the minutes are released on Jan-22. The bullish case for sterling has been strengthened this week by the BoE's latest Credit Conditions survey, which found lenders to be planning a "significant" increase in both mortgage and business lending in Q1 -- good news, especially concerning business lending, which has been a missing link in the U.K. recovery so far.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9100 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 1.2400, support at 1.2370 and 1.2350.

    [USD, CAD]
    USD-CAD has broken sharply higher this week 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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