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By XE Market Analysis January 23, 2019 4:25 am
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    XE Market Analysis: North America - Jan 23, 2019

    The Dollar has traded flat-to-softer while the Yen has been the day-to-far's underperformer and the Pound the outperformer. EUR-USD remained rooted around the 1.1350 level, while USD-JPY printed a two-day high at 109.79, which is 9 pips shy of Monday's peak. AUD-JPY and CAD-JPY both rose 0.5%, and NZD-JPY saw an even greater magnitude of gains. AUD-USD lifted to 0.7143, but remained comfortably below the 0.7182 peak seen on Monday. The price action came against a backdrop of lower Asian stock markets and firmer European stock markets. Sterling rallied to two-month highs versus both the Dollar and the Euro, and hit one-month highs versus the Yen. Cable has gained 0.5% in printing a trend high at 1.3018. The gains reflect an unwinding in the pound's Brexit-related premium after the Labour Party said that it is "highly likely" to back a cross-party motion that would take the possibility of a no-deal Brexit scenario off the table. We hear that writers of buy options have been in the mix of demand for pounds in the spot market. The news about the Labour Party, which is the principal opposition to the Conservative-DUP government, would pretty much guarantee that a no-deal Brexit legislation would become a reality.

    [EUR, USD]
    EUR-USD settled in a narrow orbit of the 1.1350 level, above the three-week low seen yesterday at 1.1336. We expect a flat-to-downward bias to prevail given the backdrop Eurozone-slowing narrative, and would see greater odds for a stronger break to the downside 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 printed a two-day high at 109.79, which is 9 pips shy of Monday's peak. AUD-JPY and CAD-JPY both rose 0.5%, and NZD-JPY saw an even greater magnitude of gains. AUD-USD lifted to 0.7139, but remained comfortably below the 0.7182 peak seen on Monday. The weakness in the Yen has come despite flagging global stock markets. We would expect the Japanese current to rebound should the risk-off theme persist, which looks more likely than not to be the case. There some concern on the U.S.-China trade front, with the Trump administration having rejected an offer by Beijing for two vice-ministers to travel to Washington DC for preparatory trade talks because of a lack of progress on two key issues, though White House adviser Kudlow said the report was "not true." USD-JPY has resistance at 109.88-90.

    [GBP, USD]
    Sterling has rallied to two-month highs versus both the dollar and the euro, and is at one-month highs versus the yen. Cable has gained 0.5% in printing a trend high at 1.3018. The gains reflect a modest unwinding in the pound's Brexit-related discount after the Labour Party said that it is "highly likely" to back a cross-party motion that would take the possibility of a no-deal Brexit scenario off the table. We hear that writers of buy options have been in the mix of demand for pounds in the spot market. The news about the Labour Party, which is the principal opposition to the Conservative-DUP government, would pretty much guarantee that a no-deal Brexit legislation would become a reality. While a "hard Brexit" would still remain a possibility, depending on how things unfold, it would almost certainly only happen after a second referendum, assuming this option is offered and wins the vote, and would, assuming the no-deal-Brexit-prevention legislation is in place, also include a multi-year transitory period before the UK finally makes a full break from the EU. Sub-forecast CBI industrial trends data cast little impact on the pound. We see Cable as now being in process of rotating to a higher trading band in the low-to-mid 1.30s.

    [USD, CHF]
    EUR-CHF has settled in the lower-to-mid 1.1300s, consolidating after carving out a one-month high on Monday at 1.1347. USD-CHF has also settled 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 yesterday 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 has settled in the lower 1.3300s after yesterday printing a 16-day high at 1.3359. 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 of late (although rebounding some today). USD-CAD has support at 1.3297-99.

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