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By XE Market Analysis January 27, 2014 7:39 am
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    XE Market Analysis: North America - Jan 27, 2014

    No big movements among the main currencies, though emerging nation currencies and stock markets in Europe and Asia remained under pressure. The dollar was net modestly firmer versus the yen, and near net unchanged versus the euro. USD-JPY recovered to the 102.50-70 area in Europe after diving to a new cycle low of 101.76 in thin, pre-Tokyo trade in Asia. EUR-JPY saw a similar price action. News of record trade deficit in Japan sparked yen selling. EUR-USD struggled to sustain post German Ifo gains as the pair unwound to sub-1.37 levels after reaching a peak of 1.3716. The German data came in above expectations but didn't have much bearing on markets. Friday's peak of 1.3739 remains unchallenged and market commentaries are reporting a mood of caution ahead of Wednesday's Fed announcement. AUD-USD managed to find a toehold after the sharp across-the-board declines it saw last week, edging to the 0.8730-40 area after opening at sub-0.87 levels. There were was a flood of remarks out of Davos at the weekend, though none seemed to have much market impact.

    [EUR, USD]
    EUR-USD struggled to sustain post German Ifo gains as the pair unwound to sub-1.37 levels after reaching a peak of 1.3716. Friday's peak of 1.3739 remains unchallenged. Market commentaries are reporting a mood of caution ahead of Wednesday's Fed announcement, which is expected to feature another tapering of asset purchases. Nearest support levels are provided by, first, the 50-day moving average at 1.3672 and, second, last Friday's low of 1.3663. Bigger picture, the bullish phase seen over the latter half of 2013 has tapered out, and we're now looking at a broad sideways direction. The prevailing risk-off theme has muddied the picture somewhat, but fundamentals still seem bearish for EUR-USD given the diverging Fed vs ECB stances, with the latter fighting what has become a disinflation problem.

    [USD, JPY]
    USD-JPY dove to a fresh low of 101.76 in pre-Tokyo trade on Monday, but rebounded above 102.00 as markets reacted to data showing Japan's trade deficit to have hit a record high in 2013. Falling stocks markets and general risk aversion in financial markets has seen the yen rally in recent days, which fits the usual pattern. Sustained risk-aversion in markets could still drive the yen higher, despite the BoJ's ultra easy policy settings. USD-JPY resistance is pegged at 102.85, which was the Jan-13 low, support at 101.76-102.00.

    [GBP, USD]
    Cable settled today near 1.6500 after volatile trade in recent sessions, U-turning lower Friday after rallying above 1.6650, meeting solid selling in the 1.6660-70 area and subsequently dropping below 1.6600 following dovish BoE-speak. Overall, we are bearish on sterling, though more so against the EUR, CHF and JPY than the USD for as long as the backdrop of risk-off persists. BoE's Carney said from Davos a the weekend that, "I am not signalling an exit of UK monetary policy here just to be clear." The recent sharp drop in the U.K. unemployment rate to 7.1% brought the bank's self-prescribed 7.0% target to within a whisker's reach, but Carney last week said that other factors will be taken into account with regard to monetary policy, which we know from the bank's forward policy framework are inflation and financial stability criteria. BoE member Fisher also downplayed the drop in jobless as average pay remains negative and inflation pressures are declining. Last month CPI fell to the BoE's mandated 2.0% target for the first time since 2009. .

    [USD, CHF]
    The meltdown in risk taking appetite has seen the CHF rally sharply this week, as China and EM concerns grip the markets. Safe-haven flows will likely continue to buoy the CHF until things settle down a bit. The FX market will be wary pushing EUR-CHF too far under 1.2200 however, as sustained downward movement will likely illicit a response from the SNB.

    [USD, CAD]
    USD-CAD has dropped back under 1.1100 and has looked heavy on moves into 1.1100. Given the sharp gains seen over the last week, profit taking shouldn't have been too much of a surprise, though following a period of consolidation further gains could be in the cards. The risk outlook has shifted negatively, which if ongoing could continue to weigh on the CAD, along with the BoC's more dovish shift..

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