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By XE Market Analysis January 16, 2018 7:33 am
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    XE Market Analysis: North America - Jan 16, 2018

    The euro dropped quite sharply on political concerns in Germany, with some SPD factions reportedly uncertain, or in outright rejection, of proposals to form a grand coalition. This has rattled EUR-USD and euro crosses, which have been aggressively bid in recent sessions. EUR-USD dove by about 70 pips in making a low of 1.2201. EUR-JPY has dropped by some 90 pips from London opening levels. EUR-USD reportedly has sell stop orders clustered around 1.2180-90, levels which have so far remained unchallenged. The dollar was the chief beneficiary of the euro's dip. The greenback was the shorting vehicle of choice during the last several weeks of the euro's ascent, and so naturally outperformed amid the correction today. The USD index (DXY) was showing a 0.4% gain as of the late London AM session, making this the first up day in a week. The index had declined by just over 2.5% since the high that was seen last Tuesday.

    [EUR, USD]
    The euro dropped quite sharply on political concerns in Germany, with some SPD factions reportedly uncertain, or in outright rejection, of proposals to form a grand coalition. This has rattled EUR-USD and euro crosses, which have been aggressively bid in recent sessions. EUR-USD dove by about 70 pips in making a low of 1.2201. EUR-JPY has dropped by some 90 pips from London opening levels. EUR-USD reportedly has sell stop orders clustered around 1.2180-90, levels which have so far remained unchallenged.

    [USD, JPY]
    USD-JPY has lifted to the upper 110.0s after opening in Tokyo just under 110.50. There were some remarks of disquiet about yen strength from both finance minister, Aso, and the economy minister, Motegi, which followed a six consecutive session run lower in USD-JPY that yesterday left a four-month low at 110.33. Japanese December PPI also came in a smidgeon shy of expectations, at 3.1% y/y, while another USD-JPY supporting influence is a large USD-JPY option structure with a 111.20 strike which is due to expire at the New York cut today. USD-JPY posted an intraday peak at 110.98. Resistance at 111.05-7, and support is at 110.29-30.

    [GBP, USD]
    Cable has settled below 1.3800 after yesterday rallying to a post-Brexit vote high of 1.3820 amid broad dollar declines. There remains a lack of strong domestic leads out of the UK. There hasn't been any Brexit-related developments of significance, with negotiations on a future trading relationship with the EU not due to begin until March, although talks on a transitory period are due to begin presently. This week brings some key data, starting with today's UK CPI for December (Tuesday), which has us expecting a moderation to 3.0% y/y (median same) after November's 3.1% y/y clip, which would square with BoE projections. December retail sales are also due (Friday), where we expect a decline of 0.8% m/m (median -0.6% m/m), which would correct some of the 1.1% m/m gain that was seen in November. Overall, data in-line with expectations shouldn't cast much bearing on sterling markets. Cable's former resistance zone, marked by cluster of recent daily highs at 1.3577-86, now reverts as a support.

    [USD, CHF]
    EUR-CHF clocked a new 37-month high at 1.1833 yesterday, tracking gains in EUR-USD. 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 continued to trade with a heavy bias, yesterday logging a five-session low of 1.2402. The low extended the decline seen after logging a high-for-the-year at 1.2590 last Thursday. A broader retreat in the U.S. dollar coupled with Loonie-supporting reports of a possible breakthrough in NAFTA negotiations (Axios reported over the weekend that Trump is softening on it), 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 this Wednesday. USD-CAD has support at 1.2400-04, ahead of trend support at 1.2355. Resistance is at 1.2457-60.

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