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By XE Market Analysis January 9, 2015 6:47 am
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    XE Market Analysis: North America - Jan 09, 2015

    The dollar corrected moderately during Asian trade. USD-JPY edged out a two-day low of 119.16, down 80 pips from the peak seen yesterday. EUR-USD recouped the 1.18 handle. AUD-USD lifted to a three-day peak of 0.8147 before steadying around 0.8120-30, knocked lower by a miss in Australian retail sales for November, which came in at +0.1% m/m. Other data from the region included China December CPI, which came in at 1.5% y/y, as expected and up from November's 1.4%. In Europe there was more soft data, with German and UK production missing expectations. Stocks in Asia rose for a second day, and oil and other commodity prices also firmed up, though European equity markets were hit by reports that the ECB is considering a QE program of EUR 500 bln, which is seen as a small figure.

    [EUR, USD]
    EUR-USD recouped the 1.18 handle. We remain bearish as markets are expecting that the ECB will announce QE at its Jan-22 policy meeting, with the central bank's concerns about deflation outweighing the recent improvement in survey data. EUR-USD resistance is marked at 1.1800, support at 1.1780 and 1.1754-55 (yesterday's nine-year low).

    [USD, JPY]
    USD-JPY edged out a two-day low of 119.16, down 80 pips from the peak seen yesterday. The pair has been trending sideways since making a seven-year peak at 121.85 on Dec-8. We remain USD-JPY bullish, however, with 'Abenomics' policies likely to maintain the dollar's yield advantage over the yen, even if Fed tightening prospects remain tentative. USD-JPY resistance is marked by former range lows at 119.96-120.09, and support is marked at 1.1835 and 1.1800-05.

    [GBP, USD]
    Sterling traded firmer, having risen ahead of production and trade data releases amid market talk that the goods trade deficit was likely to shrink more than expected, which it duly did. Cable logged a two-day at 1.5149 and the pound dipped to a one-week low against the euro. Production data were a mixed bag, with the broader industrial output figure unexpectedly dipping in m/m terms while the narrower manufacturing figure beat forecasts. Bigger picture, sterling remains in the grip of a bear trend that's been persisting since July last year. A test of 1.5000 looks just a matter of time, reportedly a big option level, and there are large sell-orders below here. The sharp drop in the UK December composite PMI, which at 55.4 is the lowest since May 2013, along with a CPI rate of 1.0%, will have strengthened the dovish voices at the BoE's Monetary Policy Committee. Cable resistance is at 1.5155, support at 1.5034-5.

    [USD, CHF]
    EUR-CHF has come under fresh pressure in recent days, once again amid general euro weakness, logging a low of 1.2007 on Wednesday. Swiss foreign currency reserves data for December this week showed reserves rose to CHF 495.1 bln (a record) from CHF 462.7 bln in November, which is a consequence of the SNB's intervention on Dec-18. The intervention was additional to the implementation of a negative deposit rate, which was cut to -0.25%, also on Dec-18. The rouble crisis and euro weakness saw EUR-CHF come under pressure in December, and on Dec-16 the cross came within six pips of SNB's the 1.2000 limit. The cross spiked to 1.2096 on Dec-18 on the intervention, along with the announcement of the negative deposit rate. This was the first time that the SNB has intervened in spot since 2012. With the ECB set to pursue QE, the SNB will have its work cut out to defend 1.2000 during the first half of 2015.

    [USD, CAD]
    USD-CAD is consolidating after the pair punched out a new trend high at 1.1874 on Wednesday when oil prices clocked a new five-year low below $48. Low oil prices are blighting Canada's terms of trade. The August 2009 high at 1.3063 provides a big-picture target.

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