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By XE Market Analysis January 22, 2019 7:24 am
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    XE Market Analysis: North America - Jan 22, 2019

    A generally firmer Dollar and Yen, and a souring in risk appetite, will greet U.S. market participants as they return to their desks from their long weekend. USD-JPY edged out a three-day low of 109.32, driven by Yen outperformance as forex markets week looking for safe havens. Europe and Asian stock markets came under pressure, and S&P 500 futures racked up a 0.8% loss in overnight trading, pointing to a hefty opening loss on Wall Street later. The cash version of the S&P 500 had closed on Friday with a 1.3% gain. A cacophony of warnings from the IMF and CEOs of major global corporations, gathered at Davos, about the global economic outlook have taking a toll on market spirits. GDP data out of China yesterday also showed 2018 growth to be the lowest annual growth since 1990. Oil prices are down nearly 2%, as of the early European PM session, too, after reaching seven-week highs yesterday (in the WTI crude benchmark futures market). EUR-USD, meanwhile, settled above a 18-day low at 1.1346, but remained heavy overall. German ZEW investor confidence improved, with the expectations reading rising to -15.0 from -17.5 in December, but the details in the report were far from encouraging, with the expectations reading still far below the long term average while the assessment of the current situation once again dropped sharply. The pound jumped in the wake of above-forecast UK jobs data, with Cable rising from levels near 1.2890 to a high of 1.2920 before the capping out. Brexit uncertainty limited impetus for follow-through buying. On the Brexit front, the UK's parliament will vote on a modified version of Prime Minister May's Withdrawal Agreement next Tuesday, January 29.

    [EUR, USD]
    EUR-USD has settled above the 18-day low seen earlier at 1.1346, but remains heavy overall. German ZEW investor confidence improved somewhat, with the expectations reading rising to -15.0 from -17.5 in December, but the details in the report were far from encouraging. The expectations reading remains far below the long term average and the improvement at the start of the year seems more a sign of a new equilibrium at low levels as investors priced in excessive risks towards the end of last year. The assessment of the current situation, meanwhile, once again dropped sharply, and sentiment on the overall situation in the Eurozone improved only marginally. Inflation expectations also dropped back sharply. Bund yields initially jumped to an intraday high of 0.2578% on the strong headline ZEW reading, but since fallen back to 0.251%. For EUR-USD, 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 edged out a three-day low of 109.32, driven by Yen outperformance as forex markets adopt a safe-haven mode. Europe and Asian stock markets came under pressure, and S&P 500 futures racked up a 0.8% loss in overnight trading, pointing to a hefty opening loss on Wall Street later. A cacophony of warnings from the IMF and CEOs of major global corporations, gather at Davos, about the global economic outlook have taking a toll on market spirits. Oil prices are down nearly 2%, as of the early European PM session), too, after reaching seven-week highs yesterday (in the WTI crude benchmark futures market). USD-JPY support comes in at 109.06-08, and resistance at 109.92-94.

    [GBP, USD]
    The pound jumped on the UK jobs release, with Cable rising from levels near 1.2890 to a high of 1.2920 before the capping out. Brexit uncertainty has limited impetus for follow-through buying. The labour data showed UK unemployment unexpectedly dipping to 4.0% in November, the lowest since February 1975, while the employment rate reached 75.8%, which is the highest on record. Average weekly earnings in real terms rose 1.1% in the excluding-bonus figure, and by 1.2% in the bonus-included figure. If it weren't for Brexit, the pound would likely be surging. On the Brexit front, the UK's parliament will vote on a modified version of Prime Minister May's Withdrawal Agreement next Tuesday, January 29. Much will depend on whether Prime Minister May can win concessions from the EU on the Irish backstop, in the hope that this would win the support (and votes) of Northern Ireland's DUP and the hard Brexiteer faction in her Conservative Party. It doesn't look likely, but there are pundits suggesting that the EU might be amenable to making a change. Poland yesterday broke ranks with the other EU 27 to propose that the backstop could have a five-year limit. Ireland is resisting, while Poland has argued that a backstop with a five-year limit would head of the risk of a no-deal Brexit scenario, which would be the worst outcome for Ireland.

    [USD, CHF]
    EUR-CHF has ebbed back to the lower 1.1300s after carving out a one-month high yesterday at 1.1347. USD-CHF is also softer after also trading at one-month highs. Recent underperformance of the Swiss franc has been accompanied by talk/suspicions of SNB intervention. SNB vice president, Zurbruegg, said that "the uncertainties concerning further developments (the world economy) have increased recently", and said that Swiss growth is expected to slow this year. He added that "the franc remains highly valued" and the situation on foreign currency markets is "still fragile." He also said that the SNB's two pillar strategy that focuses on negative interest rates and the threat of ad-hoc currency interventions "remains appropriate."

    [USD, CAD]
    USD-CAD posted a two-week high, at 1.3336. A risk-off backdrop and associated lower oil prices has generated the conditions for a generally firmer U.S. dollar and a generally weaker Canadian dollar, which, along with its Dollar bloc brethren, have been underperforming this week. USD-CAD's new high extends a rebound from the six-day low printed on Tuesday at 1.3226. Canada's calendar picks up today with manufacturing shipment values and wholesale shipment values. USD-CAD has support at 1.3297-99.

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