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By XE Market Analysis January 16, 2017 7:48 am
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    XE Market Analysis: North America - Jan 16, 2017

    The pound dove in response to weekend reports that the UK PM May will announce tomorrow that the government will be pursuing a so-called hard Brexit, leaving free access to the single market so as to take full control of the border. Cable hit a three-month low of 1.1987 in the early London AM, and was settled around 1.2060 as of the early PM session in Europe, which still left the pound nursing a 1.1% decline on the day. The pound also hit a two-month low versus the euro. Elsewhere, EUR-USD shed over 1% in making a low of 1.0580, weighed on by Cable's tumble. USD-JPY recouped above 114.00 after logging a six-week low at 113.62, which was seen following an across-the-board rally in the yen, with the Japanese currency benefitting from lower stock markets.

    [EUR, USD]
    EUR-USD drifted below 1.0600, pulled down by Cable's descent. U.S. markets will be closed today for the MLK holiday, so conditions are thin. While doubts have crept in about U.S. president-elect Trump's reflation plans following his fractious press conference on Wednesday, returning some support to the dollar have been Fed speakers, who have not been shy yesterday in warning of upside risks to policy in 2017, with the debate hottest over how quickly to hike rather than when to do so. Recent encouraging data and perky inflation figures out of the Eurozone are also in the mix, and we expect a range with upside bias to persist for now. Support is now marked by the 50-day moving average, at 1.0525. Those looking for further mean revision may be eying the 200-day moving average, which is currency sitting at 1.0995.

    [USD, JPY]
    USD-JPY ebbed to a six-week lows in the mid 113s, reflecting demand for currency safe haven of the yen with stock markets in Asia and U.S. index futures trading mostly lower. The pair is now well off the trend high seen before Christmas at 118.66, with the bull trend having lost thrust over the Christmas/New Year period amid doubts about U.S. president-elect Trump's relation plans. Resistance is marked at 115.04, which is the current position of the 50-day moving average.

    [GBP, USD]
    Sterling dove on weekend Brexit news, with a speech by PM May scheduled for Tuesday reported by several Sunday newspapers to be the venue where she will make clear that the government will take the UK out of free access of the EU's single market. Confirmation of a "hard" Brexit in other words, though government sources have downplayed this as being "speculation." In the scenario that she confirms this, the focus will be how quickly and under what terms the UK will re-establish a new trading deal with the EU and the 60 other economies that the EU has a trade deal in place. Cable hit a three-month low of 1.1987, and EUR-GBP has spiked to two-month highs above 0.8850. Much will hinge on May's speech.

    [USD, CHF]
    EUR-CHF has settled above 1.0700 after logging a two-week low at 1.0680 earlier in the month. The franc's strength against the euro, which is a proxy of the trade-weighted value of the Swiss currency, will be an ongoing concern for Swiss policymakers, although Swiss December CPI last week lifted to 0.0% y/y from -0.3% y/y in the previous month, breaking a run of 25 consecutive months of negative prints. This compares to an average CPI rate of -0.4% y/y for 2016. Base effects, stemming from higher oil prices, suggest that CPI will be biased higher over the coming months, which should help Swiss policymakers breathe easier.

    [USD, CAD]
    USD-CAD has settled in the mid 1.31s after clocking a near three-month low at 1.3029 last week after Trump failed to reignite the Trumpflation trade at his press conference. A 4%-odd rebound in oil prices over last two days of last week lent the Canadian dollar some support. The pair remains 0.7% on the w/w comparison, and down by 2.3% since the beginning of the month. The 200-day moving average, presently at 1.3154, now marks resistance.

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