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By XE Market Analysis January 28, 2014 6:40 am
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    XE Market Analysis: North America - Jan 28, 2014

    The USD pushed higher as stocks recover in Europe, with the move partly fuelled by stop orders and partly as the market is being mindful of the FOMC announcement tomorrow that is widely expected to announce a further tapering. The Fed tapering view is strengthened by the backdrop of calmer markets today, reflected by the health 0.8% rebound in the STOXX 600 index and a 0.5% gain in S&P 500 futures. EUR-USD dropped to a low of 1.3629, its lowest since last Thursday (when then the emerging market rout was gathering momentum), while USD-JPY popped back above 103.00 for the first time since last Friday. GBP-USD also dipped, finding some added momentum following U.K. GDP data, which was in-line with the consensus but disappoint the more optimistic end of the expectations spectrum.

    [EUR, USD]
    EUR-USD dropped to a low of 1.3629, its lowest since last Thursday (when then the emerging market rout was gathering momentum). The move reflected a general USD advance, pushing higher as stocks recovered in Europe, with the move partly fuelled by stop orders and partly as the market is being mindful of the FOMC announcement tomorrow that is widely expected to announce a further tapering. The Fed tapering view is strengthened by the backdrop of calmer markets today, reflected by the health 0.8% rebound in the STOXX 600 index and a 0.5% gain in S&P 500 futures. EUR fundamentals remain net bearish. Although there are signs of growth, problem No.1 for the EECB is disinflation that holds the potential to turn into deflation. ECB Draghi reaffirmed this week that interest rates will remain low or lower for an extended period, while the IMF reminded us that Eurozone inflation is "way below target" (in the wards of the Fund's boss, Lagarde), and that inflation is a real risk. We mark resistance at 1.3705-10 and the Jan-2 high of 1.3758. Support at 1.3623-25. .

    [USD, JPY]
    USD-JPY popped back above 103.00 for the first time since last Friday as global stock markets recover poise. The calmer backdrop also serves to diminish the view that the Fed might have second thoughts about announcing a further tapering in QE asset purchases. The correction low was left 101.76. The technical picture remains bearish for USD-JPY, with last week's price action seeing both the 50- and 100-day moving averages breached along with the completion of a head and shoulder reversal formation, which targets 101.20. BoJ's Kuroda said over the weekend that "inflation should hit the Bank of Japan's target of 2% within two years," which implies continued easy monetary policy, though fundamentals aren't a big factor at the moment as market participants will want to see how the jitters in emerging market pan out. USD-JPY resistance is pegged at 102.85, which was the Jan-13 low, support at 101.76-102.00.

    [GBP, USD]
    Sterling took a dive after as-expected U.K. GDP data, with the preliminary estimate for Q4 growth coming in at 0.7% q/q and the annual figure for 2013 at a six-year best of +1.9%. The pound had been bid ahead of the release, with Cable reaching a peak of 1.6625 in pre-London trade and subsequently dipping to a low of 1.6535, with the move gaining added impetus by a more general bid in the dollar via EUR-USD and USD-JPY. EUR-GBP popped by around 20 pips in the wake of the GDP release, making 0.8253 before settling. We are mildly bearish on sterling as inflation is low and is biased lower and the BoE committed to its dovish guidance. Support is marked at 1.6500, ahead of the 20-day moving average at 1.6473. Good resistance now seen at 1.6600 and 1.6625.

    [USD, CHF]
    EUR-CHF has settled to a consolidation in the mid-1.22s after dropping amid the recent risk-off theme. 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. Support is marked at 1.2240-50, which encompasses lows and the 200-day moving average.

    [USD, CAD]
    USD-CAD has established a consolidation after the strong surge to a major-trend peak of 1.1173 last week. We continue to see risk lies to the upside. The risk outlook has shifted negatively, which if ongoing could continue to weigh on the CAD, along with the BoC's more dovish shift. Resistance is marked at 1.1100, and support 1.1030 and 1.1000.

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