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By XE Market Analysis January 22, 2014 7:04 am
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    XE Market Analysis: North America - Jan 22, 2014

    The GBP and AUD have been the star performers today while USD-JPY and EUR-USD were at near net unchanged versus yesterday's New York closing levels. The JPY saw some chop into and after the BoJ announcement of unchanged policy, but made little progress directionally. The BoJ left rates at zero and the Y60-70 tln annual increase in the monetary base, while downgrading its 2014-15 growth projection at 1.4% from 1.5%. Cable, meanwhile, popped to a peak of 1.6566, the highest level seen since Jan-2, and EUR-GBP shed about 50 pips in making a fresh one-year low of 0.8181. U.K. unemployment unexpectedly fell to 7.1%, contrary to the market expectation for an unchanged 7.3% and completing a 0.6 percentage point drop in the jobless rate in just three months, a much quicker pace of decline than the BoE had projected. At the same time, the minutes to the January BoE MPC showed the Committee acknowledging a quicker than anticipated labour market improvement. Elsewhere, AUD-USD surged over 100 pips in making 0.8888, driven by Australian CPI data that came in double market expectations at +0.8% q/q in Q4, which throws a spanner in the works of the RBA's dovish stance.

    [EUR, USD]
    We continue to expect EUR-USD to trend lower, even though EUR-JPY may hold up as we anticipate general yen underperformance. The market is amid a reassessment of the ECB policy amid its battle against disinflation (and to decouple interest rate expectations in the Eurozone from the U.S. as the Fed starts policy tapering). In contrast, the U.S. Fed may well announce a further tapering in its QE asset purchase schedule at the late January FOMC (WSJ Fedwatcher Hilsenrath argued a reduction to $65 bln a month from the current $75 bln is on the cards). EUR-USD resistance at 1.3580-1.3600, support is at 1.3500.

    [USD, JPY]
    The JPY some chop into and after the BoJ meeting, before settling net higher. The BoJ announced unchanged policy, as expected, leaving rates at zero with a Y60-70 tln annual increase in the monetary base, but made a show of recommitting to its expansive monetary stance while downgrading its 2014-15 growth projection, which went down well in stock markets in Asia. USD-JPY logged an intraday peak of 104.57, having recovered from the 103.97 low. 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 surged nearly 100 pips on the U.K. labour data, with Cable making a peak of 1.6552, the highest level seen since Jan-3, before steadying. EUR-GBP shed about 50 pips in making a fresh one-year low of 0.8181. U.K. unemployment unexpectedly dropped to 7.1% in November, contrary to the market expectation for an unchanged 7.3% reading and driven by a solid 288k rise in employment. This marks a 0.6 percentage point drop in the unemployment rate three months -- a much quicker pace of decline than the central bank had projected. At the same time, the minutes to the January BoE MPC showed the Committee acknowledging a quicker than anticipated labour market improvement and that recovery has more momentum than previously thought. We anticipate further EUR-GBP downside. Resistance is pegged at 0.8230, support at 0.8100.

    [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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