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By XE Market Analysis June 13, 2014 7:03 am
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    XE Market Analysis: North America - Jun 13, 2014

    The dollar traded mixed, losing ground to sterling, which surged on a BoE Carney remark that interest rates "could rise sooner than markets currently expect," and the euro, while gaining slightly versus the yen and Aussie. Cable surged over two big figures to a high of 1.6992, stalling just four pips short of May's major trend peak, while EUR-GBP dove below 0.8000. We expect sterling to remain a buy-on-dips with the BoE policy stance now standing in sharper contrast to that of the Fed and ECB. EUR-USD, and the euro more generally, were firmer. A drop in U.S. Treasury yields weighed on the dollar, with the 10-year T-note yield spread over Bunds now at 121.9 bp, down from near 125.0 bp levels that were seen yesterday. A combination of short covering and corporate demand also drove the likes of EUR-AUD, EUR-JPY and EUR-NZD higher after a week of heavy losses. USD-JPY recovered 102.00 but ran into a wall of offers, leaving a 102.09 high before slipping back below the figure. The move completed a near 60 pip recovery from yesterday's low, which stalled five pips shy of yesterday's high. BoJ's Kuroda said in his post-BoJ press conference pledged that the central will ease policy again if necessary in order to meet the 2.0% inflation target.

    [EUR, USD]
    EUR-USD, and the euro more generally, are firmer today. A drop in U.S. Treasury yields has weighed on the dollar, with the 10-year T-note yield spread over Bunds now at 121.9 bp, down from near 125.0 bp levels that were seen yesterday. A combination of short covering and corporate demand have driven the likes of EUR-AUD, EUR-JPY and EUR-NZD higher. EUR-AUD, for example, having been heavily sold this week to seven-month lows, has recouped about half of yesterday's losses. EUR-JPY made a two-day peak of 138.55 before settling around 138.35, still up over 70 pips on yesterday's four-month low. EUR-USD clocked a rebound high of 1.3565 so far, still fairly modest, with option related selling going through. Large 1.350 option strikes are reported. We peg yesterday's 1.3557 high as a key near-term resistance and risk level. A breach above this level would suggest nearer-term selling interest may have become exhausted, and suggest scope for a short-covering pop to 1.3600 and above.

    [USD, JPY]
    USD-JPY ran into a wall of offers during the brief foray above 102.00, leaving a 102.09 high before slipping back below the figure. The move completed a near 60 pip recovery from yesterday's low, but stalled five pips shy of yesterday's high. BoJ's Kuroda said in his post-BoJ press conference pledged that the central will ease policy again if necessary in order to meet the 2.0% inflation target. He said that CPI will remain below 1.5% for some time. He also argued that the impact of the three percentage point sales tax hike in April will recede over the summer period. Overall, not much for markets to go on, though the yen did weaken slightly as his comments hit the wires. USD-JPY pair remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    GBP surged on hawkish BoE speak with BoE's Carney signalling at a keynote speech last night that interest rates "could rise sooner than markets currently expect," and that the housing market was now "the greatest risk to the domestic economy." This will invite markets to re-price in a 25 bp hike before year-end. Carney's comments also chime with recent remarks by his MPC colleague, Weale, who has argued that small, incremental rate rises would be better started sooner rather than later if potentially disrupting bigger and more sudden tightenings were to be avoided further down the road. Cable surged over two big figures to a high of 1.6972, and EUR-GBP dove below 0.8000. We expect sterling to remain a buy on dips into the London session with the BoE policy stance now standing in sharper contrast to that of the Fed and ECB. Elsewhere, EUR-USD was steady in the mid-1.35s, and USD-JPY recovered to the 102.00 area after dipping to a 101.60 low in the New York PM session. The BoJ left policy unchanged at its meeting today.

    [USD, CHF]
    EUR-CHF found a footing after making a one-month low of 1.2166 last week, though still holds below 1.2200. The break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, but so far have remain unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD broke to a 10-day low near 1.0850 after the recent consolidation above 1.0900 petered out. Price action remains bearish, with the pair edging out a fresh low today in both Asian and London AM trade. This brings into scope the May lows at 1.0814-1.0822, which we mark as key support levels. Bigger picture, USD-CAD has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy should put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD over the coming period.

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