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By XE Market Analysis January 15, 2015 6:56 am
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    XE Market Analysis: North America - Jan 15, 2015

    EUR-CHF collapsed after SNB gave up the 1.2000 franc cap. This sent the cross to a 1.0236, which is a massive price action. With the ECB set to pursue QE, it was always going to be a tall order for the SNB to defend 1.2000, while the central bank stated that "while the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate," and that "the economy was able to take advantage of this phase to adjust to the new situation." The EUR-CHF nosedive caused chaos in forex markets. EUR-USD hit a new nine-year low at 1.1572 following a two-big figure dive, subsequently rebounding sharply to near net unchanged levels around 1.1750, and then settling to a jumpy oscillation around the 1.1700 level. EUR-JPY selling and a degree of safe-haven buying underpinned the yen, sending USD-JPY to a 116.29 low, well off the pre-SNB announcement high of 117.94.

    [EUR, USD]
    EUR-USD saw a bout of very sharp volatility on the back of EUR-CHF's dive after the SNB gave up on the 1.2000 limit. EUR-USD hit a new nine-year low at 1.1572 following a two-big figure dive, subsequently rebounding sharply to near net unchanged levels around 1.1750, and then settling to a jumpy oscillation around the 1.1700 level. We expect EUR-USD will remain biased lower now that one of the big buyers of euros has exited the market. Markets are also pretty much fully factoring a QE announcement from the ECB at its approaching Jan-22 council meeting, with the only question now being what magnitude it will be. Resistance is marked at 1.1750 and 1.1773-75, support 1.1666-70 1.1600. We anticipate sub-1.1500 levels will be seen over the coming week.

    [USD, JPY]
    USD-JPY got caught up in the disruptive volatility seen in forex markets amid the EUR-CHF collapse after SNB abandoned the franc cap. EUR-JPY selling and a degree of safe-haven buying underpinned the yen, sending USD-JPY to a 116.29 low, well off the pre-SNB announcement high of 117.94. Yesterday's one-month low at 116.07 marks support ahead of 1.1600 and the Dec-16 low at 115.57. We expect downside potential will be limited in the bigger picture as 'Abenomics' policies remain alive and well in Japan, with news today that the BoJ is considering extending two lending programmes set to expire in March (according to Bloomberg sources).

    [GBP, USD]
    Sterling has established a firmer footing against both the dollar and the euro in recent days, with both BoE Governor Carney and other MPC members downplaying the dive in headline CPI to 0.5% in December data. BoE MPC member Sentence today repeated the message of Governor Carney from a couple of days ago, downplaying the CPI plunge by arguing that long-term price pressures may not be disinflationary in the UK, and that transitional (ie oil prices) and long-term factors must be distinguished between. The fact that the December inflation report had also shown that the core measure of CPI had in fact ticked higher, to 1.35% y/y from 1.2% has also not been lost on markets. Cable support is marked at 1.5145-55, resistance at 1.5268-70 and 1.5300. The nearest moving average of note is the 20-day average at 1.5376.

    [USD, CHF]
    EUR-CHF has collapsed as SNB gave up the 1.2000 cap. This sent the cross to a 1.0236 according to our price information, which is of course a massive price action. With the ECB set to pursue QE, it was always going to be a tall order for the SNB to defend 1.2000. The SNB also lowered the sight deposit rate to -0.75% form -0.25 % and the target range for 3-month Libor to between -1.25% and -0.25% from the current range of between -0.75% and 0.25%. The SNB said, "while the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate," and that "the economy was able to take advantage of this phase to adjust to the new situation." At the time of writing we were still waiting for SNB boss Jordan to give a press conference, at 12.15 GMT.

    [USD, CAD]
    USD-CAD has consolidated in the mid-119s after clocking to a new major-trend peak of 1.2017 on Wednesday. Lower oil prices blights Canada's terms of trade, and NYMEX oil prices look set for a test of the 2009 low at $40.68. The August 2009 high at 1.3063 provides a big-picture target for USD-CAD.

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