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By XE Market Analysis January 9, 2019 7:06 am
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    XE Market Analysis: North America - Jan 09, 2019

    The Dollar has been trading on a softer tack so far today, posting fresh lows in the cases against the Dollar bloc currencies, which have outperformed amid a backdrop of firmer crude and global equity markets, while still holding below recent lows versus other currencies. USD-CAD, now in its sixth consecutive session of decline, which has been concomitant with a series of higher rebound highs in oil prices, printed a five-week low at 1.3223, while AUD-USD lifted to a fresh three-week high at 0.7171. NZD-USD also rallied. EUR-USD lifted back above 1.1450, but remained within recent range bounds. USD-JPY and Yen crosses have remained buoyant amid the risk-on backdrop as hopes for a breakthrough in the U.S.-China trade standoff run high. Both sides had agreed to extend talks into an unscheduled third day amid reports of progress on Chinese imports of U.S. goods and increased access to Chinese markets, and Bloomberg cited sources reporting that President Trump is now eager to strike a deal. The two sides will simultaneously release statements tomorrow (Thursday AM, Beijing time). The increased optimism has seen Fed funds futures price back in odds for a 25 bp rate hike in 2019. The Pound has been trading mixed, and we expect the currency to remain in a directional stasis until next Tuesday's UK Parliament vote on the Brexit deal.

    USD-JPY and Yen crosses have remained buoyant amid a backdrop of rising global equity markets. USD-JPY retested 109.00 but has so far left yesterday's one-week peak at 109.08 untroubled. EUR-JPY and AUD-JPY, meanwhile, have posted fresh one-week and 11-day highs, respectively. Hopes for a breakthrough in the U.S.-China trade standoff are continuing to run high. Both sides agreed to extend talks into an unscheduled third day amid reports of progress on Chinese imports of U.S. goods and increased access to Chinese markets, and Bloomberg cited sources reporting that President Trump, who tweeted that "talks are going very well," is now eager to strike a deal. The MSCI Asia-Pacific (ex-Japan) index has gained over 1.5%, reaching a 26-day high. The S&P 500 index closed on Wall Street yesterday with a 0.97% gain, and S&P 500 futures are showing an 0.4% advance in overnight trading. The increased optimism has seen Fed funds futures price back in odds for a 25 bp rate hike in 2019. In Japan today, wages data came in on the warm side of expectations, rising 2.0% y/y versus the median forecast for 1.2% y/y. We advise trend-following USD-JPY gains. Support comes in at 108.35.
    EUR-USD is now into a third day of orbit around the 1.14500 level, with the paring lacking overall direction and remaining recent range bounds. Optimism that the U.S. and China are heading to an accord on trade, along with the legacy of last Friday's stellar U.S. jobs report have seen Fed funds futures price back in odds for a 25 bp rate hike in 2019. This, coupled with signs of flagging Eurozone growth momentum, should curtail EUR-USD's upside potential. We see EUR-USD as having entered a broadly sideways range phase. Resistance comes in at 1.1497-1.1500.
    The Pound should remain in a directional stasis into next Tuesday's UK Parliament vote on the EU Withdrawal Agreement and outline for a future relationship. Cable has settled in the mid 1.2700s, down from the 10-day peak at 1.2798 seen yesterday. The high extended the recovery from the 21-month low that was printed at 1.2455 last week. Germany and Ireland have been working on ways to improve the communication of the "future relationship" part by way of coming up with better solutions to maintain a free flowing border between Ireland and Northern Ireland. This aim of this effort is to help UK Prime Minister May get the vote through Parliament; but, the problem is it leaves the Irish border backstop, as detailed in the Withdrawal Agreement -- which the EU has stated won't be renegotiated -- firmly in place, and, as such, it continues to look highly probably that the deal will be voted down. Of all the possible scenarios at the point that next Tuesday's vote rejects May's deal, our 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. Cable has support at 1.2709-10, and resistance at 1.2800.
    The dollar bloc currencies have continued to outperform, with the relative higher beta currencies benefiting from the risk-on vibe in global equity and commodity markets. The biggest gainer has been NZD-JPY, which is showing a rise of 0.8%, followed by AUD-JPY, with an advance of 0.5%, and CAD-JPY, which is up by 0.4%. The biggest loser is the yen, reflecting an unwind in risk-off positioning. AUD-USD and NZD-USD are at respective three-week highs, while USD-CAD has descended into five-week low terrain. Oil prices are up over 2%, in what is now the sixth consecutive day of advance, with the early year-to-date move now a gain of 11.9%. Most industrial metal prices are also up. In equity markets, MSCI Asia-Pacific index (ex Japan) rallied by over 1.5% on route to a near one-month high, while the pan-Europe Stoxx 600 index is up 0.7%, also at near its best levels in a month, while S&P 500 futures are up 0.3%, pointing to opening gains on Wall Street later after the cash index closed out the regular session yesterday with a 0.97% rise. Markets are betting on a breakthrough in the U.S.-China trade standoff, ignoring the World Bank's forecast of slowing global growth in 2019.

    [EUR, USD]
    EUR-USD is now into a third day of orbit around the 1.14500 level, with the paring lacking overall direction and remaining recent range bounds. Optimism that the U.S. and China are heading to an accord on trade, along with the legacy of last Friday's stellar U.S. jobs report have seen Fed funds futures price back in odds for a 25 bp rate hike in 2019. This, coupled with signs of flagging Eurozone growth momentum, should curtail EUR-USD's upside potential. We see EUR-USD as having entered a broadly sideways range phase. Resistance comes in at 1.1497-1.1500.

    [USD, JPY]
    USD-JPY and Yen crosses have remained buoyant amid a backdrop of rising global equity markets. USD-JPY retested 109.00 but has so far left yesterday's one-week peak at 109.08 untroubled. EUR-JPY and AUD-JPY, meanwhile, have posted fresh one-week and 11-day highs, respectively. Hopes for a breakthrough in the U.S.-China trade standoff are continuing to run high. Both sides agreed to extend talks into an unscheduled third day amid reports of progress on Chinese imports of U.S. goods and increased access to Chinese markets, and Bloomberg cited sources reporting that President Trump, who tweeted that "talks are going very well," is now eager to strike a deal. The MSCI Asia-Pacific (ex-Japan) index has gained over 1.5%, reaching a 26-day high. The S&P 500 index closed on Wall Street yesterday with a 0.97% gain, and S&P 500 futures are showing an 0.4% advance in overnight trading. The increased optimism has seen Fed funds futures price back in odds for a 25 bp rate hike in 2019. In Japan today, wages data came in on the warm side of expectations, rising 2.0% y/y versus the median forecast for 1.2% y/y. We advise trend-following USD-JPY gains. Support comes in at 108.35.

    [GBP, USD]
    The Pound should remain in a directional stasis into next Tuesday's UK Parliament vote on the EU Withdrawal Agreement and outline for a future relationship. Cable has settled in the mid 1.2700s, down from the 10-day peak at 1.2798 seen yesterday. The high extended the recovery from the 21-month low that was printed at 1.2455 last week. Germany and Ireland have been working on ways to improve the communication of the "future relationship" part by way of coming up with better solutions to maintain a free flowing border between Ireland and Northern Ireland. This aim of this effort is to help UK Prime Minister May get the vote through Parliament; but, the problem is it leaves the Irish border backstop, as detailed in the Withdrawal Agreement -- which the EU has stated won't be renegotiated -- firmly in place, and, as such, it continues to look highly probably that the deal will be voted down. Of all the possible scenarios at the point that next Tuesday's vote rejects May's deal, our 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. Cable has support at 1.2709-10, and resistance at 1.2800.

    [USD, CHF]
    EUR-CHF has settled in the mid 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 in its sixth consecutive session of decline, which has been concomitant with a series of higher rebound highs in oil prices. The pair printed a five-week low at 1.3226. USD-CAD's early December low at 1.3160 provides a downside waypoint. BoC policymakers meet on policy today, 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.

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