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By XE Market Analysis January 20, 2014 2:32 pm
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    XE Market Analysis: North America - Jan 20, 2014

    EUR-USD recovered after making an eight-week of 1.3507 low in Asia, triggering buy stops through 1.3540-50 and making an intraday peak of 1.3551. The speculative market had built up net short exposure (indicated by ONDA analytics at about 60% short versus 40% long), so a rebound in today's subdued market seems natural enough. Underlying fundamentals remain bearish with the ECB making an concerted effort to decouple Eurozone yields from U.S. yields as the Eurozone central bank tackles a disinflation problem. The yen, meanwhile, posted moderate gains Asian trade. USD-JPY dipped to a six-day low of 103.86 before recovering to the 104.20-25 area during the European AM. EUR-JPY and other yen crosses saw pretty much the exact same price action. EUR-JPY logged a low of 140.32, which was the lowest traded since Dec-6, before recovering above 141.00. AUD-USD rebounded above 0.8800 after making a two-and-a-half year low of 0.8756 during the Sydney session. Net weak data out of China and Japan today supports the bearish argument for the Aussie.

    [EUR, USD]
    EUR-USD recovered after making an eight-week of 1.3507 low in Asia, triggering buy stops through 1.3540-50 and making an intraday peak of 1.3551. The speculative market had built up net short exposure (indicated by ONDA analytics at about 60% short versus 40% long), so a rebound in today's subdued market seems natural enough. Underlying fundamentals remain bearish with the ECB making an concerted effort to decouple Eurozone yields from U.S. yields as the Eurozone central bank tackles a disinflation problem. In the broader view we think the pairing is making a topping formation and would therefore be more apt to sell into strength. Resistance at 1.3656-1.3679, which encompasses both the 20- and 50-day moving averages. Initial support is at 1.3580.

    [USD, JPY]
    USD-JPY dipped to a six-day low of 103.86 before recovering to the 104.20-25 area during the European AM. EUR-JPY and other yen crosses saw pretty much the exact same price action. EUR-JPY logged a low of 140.32, which was the lowest traded since Dec-6, before recovering above 141.00. Japan's government last Friday raised its assessment of the economy in its latest monthly report, and data revealed an upward revision to wages, both of which will please policymakers as they pursue an aggressive reflationary policy. We continue to expect that USD-JPY's major-trend peak at 105.44 to fall as the BoJ's expansive monetary policy should continue to drive the yen to fresh lows during 2014. Data this month showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having. The BoJ is targeting a monetary base to Y270 tln by the end of the year.

    [GBP, USD]
    Sterling received a short in the arm following last Friday's release of much stronger than expected retail sales data for December. However, the overall outlook is still looking generally less bullish following CPI figures that showed inflationary pressures to be rapidly unwinding and real sector data and survey evidence that have shown that the economy hasn't been sustaining recovery momentum as well has had been thought. The data backdrop supports the BoE's ultra-easy policy stance. We still expect the pound to hold up against the likes of the yen, but to loose ground to the dollar. GBP-USD's six-month rally now looks to have capped out and we see scope for a correction to 1.6000. Initial resistance is marked at 1.6450.

    [USD, CHF]
    The CHF has seen some choppy price action in recent sessions, but overall we expect the currency to remain on a bigger-picture softer footing as a consequence of the unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2400, support at 1.2320 and 1.2300.

    [USD, CAD]
    USD-CAD has broken sharply higher over the last week, partly driven by weaker Canadian data and the consequent underpinning of favourable yield differential movement. The pair broke 1.0700, 1.0800 and now 1.0900, taking out its Dec-20 major trend peak of 1.7337 on route. The price action marks a break higher after some pretty choppy price action over the last several of weeks. Resistance can now be expected at 1.1000, support at 1.0920-1.0900.

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