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By XE Market Analysis January 21, 2019 6:52 am
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    XE Market Analysis: North America - Jan 21, 2019

    There hasn't been a strong theme in forex markets so far today. Sterling paring losses seen during the early part of the London session, while EUR-USD settled in the upper 1.1300s, above Friday's 17-day low at 1.1353, and near the 1.1400 level, which roughly marks the midway point of a broadly sideways range that's been unfolding for three months now. AUD-USD, like Cable, managed to edge out two-session lows, though the magnitude of movement was limited. USD-JPY traded moderately softer, though has held within Friday's range so far. An intraday low was printed at 109.47. EUR-JPY saw a similar downward drift, but also remained within its range seen on Friday, while AUD-JPY edged out a two-session low at 78.28. Stock markets in Asia rose, though gains were mostly moderate in magnitude, while Europe bourses turned negative and S&P 500 futures were showing a low of 0.5% as of the late London AM, correcting after the cash version of the index closed out on Wall Street on Friday with a 1.3% gain. China Q4 GDP data showed growth easing to 6.4% y/y, meeting expectations in declining from 6.5% y/y in Q3, while 2018 growth ebbed to 6.6%, the slowest annual growth since 1990. Fitch also reported that defaults on Chinese corporate bonds rose to a record high in 2018. Offsetting this were data showing China's industrial production beating expectations with 5.7% growth, while retail sales rose 8.2% y/y. Another offset are expectations for the U.S. and China to be more committed to finding resolution to their trade dispute as the consequences becoming increasingly evident on both sides of the Pacific.

    [EUR, USD]
    EUR-USD has been busy going nowhere, ebbing back from the intraday at 1.1391 and then rebounding out of the London AM low at 1.1366, leaving the pair mired in a narrow range at levels that are near the midway point of a broadly sideways range that's been unfolding for three months now. We expect a flat-to-downward bias to prevail given the backdrop Eurozone-slowing narrative, seeing greater odds for a downside break if there is positive news on the partial shutdown in the U.S. and/or a breakthrough on the U.S.-China trade negotiation front. EUR-USD resistance comes in at 1.1407-10.

    [USD, JPY]
    USD-JPY has traded moderately softer, though has held within Friday's range so far. An intraday low was printed at 109.47. EUR-JPY saw a similar downward drift, but also remained within its range seen on Friday, while AUD-JPY edged out a two-session low at 78.28. Stock markets in Asia lifted, although gains were mostly moderate in magnitude, while Europe bourses turned negative and S&P 500 futures were showing a low of 0.5% as of the late London AM, correcting after the cash version of the index closed out on Wall Street on Friday with a 1.3% gain. China Q4 GDP data showed growth easing to 6.4% y/y, meeting expectations in declining from 6.5% y/y in Q3, while 2018 growth ebbed to 6.6%, the slowest annual growth since 1990. Fitch also reported that defaults on Chinese corporate bonds rose to a record high in 2018. Offsetting this were data showing China's industrial production beating expectations with 5.7% growth, while retail sales rose 8.2% y/y. Another offset are expectations for the U.S. and China to be more committed to finding resolution to their trade dispute as the consequences becoming increasingly evident on both sides of the Pacific. We anticipate that USD-JPY will trade without overall direction for now. Support comes in at 109.06-08, and resistance at 109.92-94.

    [GBP, USD]
    Sterling came under pressure, though pared most of the losses in late London AM session. Cable printed a two-session low at 1.2830, which put in some more distance from the two-month high printed last Thursday at 1.3001, before lifting back above 1.2850. The pound was affected by media reports that UK Prime Minister May will , after meeting with her Cabinet yesterday evening, and evidently wary of causing a massive split in her Conservative Party, reject efforts to form a cross-party consensus, which would have most likely centre on a "soft" Brexit version, and instead redouble efforts to persuade Brussels to renegotiate the Irish border backstop. Her aim is, most likely, to win the support of Northern Ireland's DUP and the faction of the so-called hard Brexiteers in the Conservative Party. This looks to be a long shot. A vote on whatever May comes up with will take place before month end. If that fails, then a new referendum would at that point be a strong probability. We anticipate sterling will remain bias to the downside for now, although sustained movements are unlikely until a clearer Brexit picture emerges.

    [USD, CHF]
    EUR-CHF has settled above 1.1300. USD-CHF has also been trading in three-week high territory. Recent underperformance of the Swiss franc has been accompanied by talk/suspicions of SNB intervention. There had also been rumoured SNB intervention a couple of weeks ago, which had propelled EUR-CHF to a then three-week high at 1.1335 (subsequently surpassed the next day, when a 1.1340 high was clocked before the cross retreated to sub-1.1300 levels). SNB Chairman Jordan warned last Wednesday that it was "too early for a change" in the central bank's ultra-accommodative monetary policy, saying, with regard to the global outlook, that "the situation remains fragile and uncertainty has increased" while complaining that the franc remained "highly valued." The cross had earlier in the month punched out a four-month low at 1.1184, which was seen as the Swiss currency picked up safe haven demand amid a bout of turmoil in global markets. The SNB remained firmly on hold at its quarterly policy meeting last month, continuing to rely on the combination of negative interest rates and intervention, or threat thereof, to limit appreciation in the currency.

    [USD, CAD]
    USD-CAD has settled back in the upper 1.3200s after printing a 10-day high last Thursday at 1.3319. The high extended a rebound from the six-day low printed on Tuesday at 1.3226, which was seen as the Canadian Dollar and its Dollar bloc brethren found support on news that China is implementing tax cuts and other measures to stimulate its economy. Since then there has been signs that the Trump administration is more eager to strike a deal with China on trade, which has returned support to the Canadian Dollar. USD-CAD has support at 1.3228-50.

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