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By XE Market Analysis January 13, 2015 6:53 am
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    XE Market Analysis: North America - Jan 13, 2015

    The dollar has retained a generally firm tone today. EUR-USD decline from the mid-1.18s to a 1.1789 low. While the dollar has lost some traction as expectations of Fed tightening turn somewhat tentative, the market is still not keen on buying euros with the ECB expected to announce a QE program at the approaching Jan-22 council meeting. ECB's Coere said today that the central bank is ready to decide on bond purchases at the Jan-22 council meeting, and his colleague Nowotny said that the ECB should act sooner rather than later on the deflation risk. Sterling and UK yields have taken a tumble in the wake of UK December inflation data, which saw headline CPI halve November's 1.0% rate to 0.5% y/y, the joint lowest rate on record. Cable matched Friday's 1.5077 low before steadying. USD-CAD clocked a fresh trend high at 1.1993 as NYMEX crude front-month futures hit new five-year lows below $45 in front-month NYMEX futures. USD-JPY rebounded from a one-month low at 117.73, rising over a big figure to 118.85 before stalling, subsequently drifting back to the 118.50 area.

    [EUR, USD]
    EUR-USD has found a toehold after dipping to a 1.1789 low. While the dollar has lost some traction as expectations of Fed tightening turn somewhat tentative, the market is still not keen on buying euros with the ECB expected to announce a QE program at the approaching Jan-22 council meeting. The Handelsblatt reported this week that a broad majority at ECB are in favour of sovereign bond purchases, ECB's Coere said today that the central bank is ready to decide on bond purchases at the Jan-22 council meeting, and his colleague Nowotny said that the ECB should act sooner rather than later on the deflation risk. EUR-USD resistance is marked at 1.1871-75 and 1.1900, support 1.1780-86. We continue to see the pair as a sell-on-rallies trade.

    [USD, JPY]
    USD-JPY rebounded from a one-month low at 117.73, rising over a big figure to 118.85 before stalling, subsequently drifting back to the 118.50 area. A fresh five-year low in oil prices (NYMEX crude fell below $45) and generally lower stock markets weighed on the yen during the early part of Tokyo trade, before dollar buying kicked in. Good Chinese trade data, with the December balance rising to $ 49.6bn, helped lift the mood in stock markets. In the bigger picture, USD-JPY has been trending broadly sideways since making a seven-year peak at 121.85 on Dec-8. We remain 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 at 117.70-75.

    [GBP, USD]
    Sterling and UK yields have taken a tumble in the wake of December inflation data release, which saw headline CPI halve November's 1.0% rate to 0.5% y/y, the joint lowest rate on record (last seen in May 2000). Cable matched Friday's 1.5077 low before finding a toehold, after dropping from 1.5120 on the data. EUR-USD is higher, but has thus far remained within Monday's range. The sharp deceleration in inflation was driven by falling oil prices. Core CPI, which strips out volatile items, including fuel, in fact nudged slightly higher to 1.3% y/y from 1.2% in November. The data will still, however, support the dovish majority at the BoE's Monetary Policy Committee, and markets will continue push back expected start data for policy tightening. Cable support is marked at 1.5034-5, though we expect to see sub-1.50 levels before long.

    [USD, CHF]
    EUR-CHF has come under fresh pressure in recent days, once again amid general euro weakness. Swiss foreign currency reserves data for December last 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 clocked a fresh trend high at 1.1993 as NYMEX crude front-month futures hit new five-year lows below $45 in front-month NYMEX futures. Lower oil prices blighting Canada's terms of trade, keeping the pressure on the loonie. NYMEX oil prices look set for a test of the 2009 low at $49.68, while the August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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