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By XE Market Analysis January 23, 2014 8:05 am
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    XE Market Analysis: North America - Jan 23, 2014

    The EUR popped higher on strong Eurozone PMI data, which saw both EUR-USD and EUR-JPY jump to respective one-week highs of 13646 and 142.21. EUR-GBP recovered a good chunk of yesterday's post-U.K. labour data drop in rising to the 0.8220 area, aided further by a disappointing outcome in today's U.K. CBI distributive trades survey. Elsewhere, USD-JPY dropped under yesterday's 104.20 low as the yen short positions ran for cover following much weaker than expected flash estimate of January China PMI, according to the HSBC-Markit measure. The dollar bloc currencies were also pressured following the Chinese data. The AUD more than reversed Wed 's rally and fell to to a two-day low of 0.8763, less than 10 pips from the two-and-a-half year low that was seen earlier in the week. USD-CAD extended yesterday's post-BoC rally, smashing through 1.1100 during the Asian session and extending to a new five-year peak of 1.1173 in London.

    [EUR, USD]
    The EUR popped higher on strong Eurozone PMI data, which saw both EUR-USD and EUR-JPY jump to respective one-week highs of 13646 and 142.21. EUR-GBP recovered a good chunk of yesterday's post-U.K. labour data drop in rising to the 0.8220 area, aided further by a disappointing outcome in today's U.K. CBI distributive trades survey. The Eurozone data surprise caught the speculative market running with a net short position, which infers that some of the rebound was fuelled by position squaring. The data muddies the fundamental picture with regard to EUR=USD. We don't anticipant extended upside progress, with the Fed on course to make a further tapering in QE asset purchases at next week's FOMC. Resistance is marked at 1.3600 -1.3605, the latter of which marks the present level of the 20-day moving average. The 50-day moving average comes in at 1.3672.

    [USD, JPY]
    USD-JPY dropped under yesterday's 104.20 low as the yen short positions ran for cover following much weaker than expected flash estimate of January China PMI, according to the HSBC-Markit measure. Strong support is seen at 104.00. Bigger picture, 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 has been mixed, firmer against the USD (making a two-year high above 1.6600) but weaker versus the EUR following strong Eurozone PMI data. The U.K. fundamental picture is somewhat muddy. We had the unexpected drop in unemployment to 7.1% in November, but the January CBI distributive trades and industrial trends surveys disappointed, describing a moderation in economic recovery following a patch of above-trend growth in the second half of last year. The CBI also pointed out that ongoing real declines in average household incomes (presently running at -1% y/y based on most recent income and CPI data), which is one of the key factors that the BoE's MPC pointed out with regard to its efforts to downplay the recent sharp drop in unemployment. Cable resistance is 1.6650.

    [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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