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By XE Market Analysis January 12, 2018 7:26 am
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    XE Market Analysis: North America - Jan 12, 2018

    The euro rallied to fresh highs on news of a breakthrough in coalition talks in Germany, which followed yesterday's ECB minutes, which many interpreted as being hawkish. EUR-USD traded above 1.2700 for the first time since December 2014, and EUR-CHF also forayed into 37-month high territory. The dollar bore the brunt of euro buying, and posted fresh lows against a number of currencies. Remarks from Fed dove Dudley that a gradualist approach to monetary policy tightening was still justified helped the dollar on its way lower. USD-JPY declined for a fifth straight day, logging a seven-week low of 110.97, Cable logged a 12-week high at 1.3640 and AUD-USD traded above 0.7900 for the first time since late September.

    [EUR, USD]
    The euro rallied again today, and was showing a 0.8% gain in the dollar as of the late London AM session, which was the weakness currency on the day so far, and a 0.6% advance on the yen and a 0.2% gain versus sterling. News of a breakthrough in German coalition negotiations provided a buying catalyst in a market that is bullish for the euro, with recent data having on net reaffirmed the picture of accelerating growth momentum and the ECB minutes having yesterday affirmed that the central bank is course to end its asset purchase program. EUR-USD smashed through the 2017 high at 1.2092 on route to logging a 37-month peak at 1.2136. This is now the fourth consecutive week that the pair has posted a higher high from the previous week. The euro broke and closed above both the 20- and 50-day moving averages yesterday, too. The December 2014 high at 1.2569 provides an upside target. Trend support is at 1.2028-30.

    [USD, JPY]
    USD-JPY has declined for a fifth consecutive session, today logging a seven-week low at 110.99, extending the decline from Monday's high at 113.38. Markets are continue to adjust to the BoJ's QE tapering announcement earlier in the week, while the dollar itself has come under broader pressure (having proved to be the principal shorting vehicle for euro longs). We advise trend following, with USD-JPY's technical picture turning more bearish this week, breaching and closing below its 200-day moving average at 111.77. The late November low at 110.84 provides and immediate downside target. Trend resistance comes in at 111.44-45.

    [GBP, USD]
    Cable has declined for three straight days, today logging a two-week low of 1.3473. This extends the correction from the 1.3613 high that was seen on January 3. Bellwether supermarkets Tesco and M&A both announced disappointing sales over the Christmas period, which caught attention as it follows the weakest non-food retail sales performance in eight years in BRC data for Q4, adding to the picture of consumers being afflicted by real wage declines. Cable has been trending choppily higher since April last year, though momentum indicators, such as the 14-day relative strength indicator, have been showing 'bearish divergence' (declining while spot prices move higher) over the last couple of months, portending a possible directional shift to the downside. Cable has resistance at 1.3495 and 1.3513-15, and support at 1.3424-25.

    [USD, CHF]
    The Swiss franc encountered selling this week after EUR-CHF dipped under 1.1700, which propelled the cross back above 1.1700 and putting last week's three-year high at 1.1778 back in the scopes. The cross has been on a broadly upward path since mid last year, reflecting economic recovery in the Eurozone, alongside the apparent passing of the worst of the existential political threats to the Euro area. The SNB's punitive -0.75% deposit rate has also been in the mix of directional drivers. EUR-CHF would need to reach 1.2000 to fully reverse the losses that were seen after the SNB abandoned the franc cap in January 2015, which is something we anticipate will be achieved in the coming months.

    [USD, CAD]
    USD-CAD has retreated to the lower 1.25s after logging a high-for-the-year at 1.2590 yesterday. A broader retreat in the U.S. dollar coupled with Loonie-supporting reports of a possible breakthrough in NAFTA negotiations, have weighted on USD-CAD. A lot of focus will remain on the NAFTA negotiations, with uncertainty about this having curtailed the Canadian dollar rallying amid the surge in oil prices and expectations for the BoC to hike interest rates by 25 bp next Wednesday. Ahead into 2018, how the U.S. dollar benefits from the expected tax overhaul, how oil prices evolve, how NAFTA re-negotiatios go, and how the BoC proceeds with its slow-go tightening cycle will be dominant themes for USD-CAD.

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