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By XE Market Analysis March 12, 2015 6:51 am
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    XE Market Analysis: North America - Mar 12, 2015

    Things got a bit more two sided today. EUR-USD staged a half decent rebound to the mid-1.06s after making a new trend low at 1.0495 in Asia. The pair subsequently dove back to 1.0580 before setting near the 1.06 mark. The sharp rebound was driven by profit taking, with the market taking a cue from a 7 bp retreat in the U.S. 10-year benchmark versus Bund yield spread to the 188 bp area. Remarks from ECB's Coeure that QE could be extended beyond September 2016, if needed, kept euro bears in the game though there is some debate about how far the euro can fall. USD-JPY has continued to oscillate in the 121s while EUR-JPY hit a 21-month low at 127.62 in Asia before rebounding to the upper 128s. EUR-GBP rebounded to the upper 0.70s in a euro led move.

    [EUR, USD]
    Things got a bit more two sided today. EUR-USD staged a half decent rebound to the mid-1.06s after making a new trend low at 1.0495 in Asia. The pair subsequently dove back to 1.0580 before setting near the 1.06 mark. The sharp rebound was driven by profit taking, with the market taking a cue from a 7 bp retreat in the U.S. 10-year benchmark versus Bund yield spread to the 188 bp area. Remarks from ECB's Coeure that QE could be extended beyond September 2016, if needed, kept euro bears in the game though there is some debate about how far the euro can fall. A Citigroup research note, circulated yesterday, pithily observed that if EUR-USD continues to fall at the average rate of decline seen over the last couple of weeks (which is 56 pips per day), the pair will reach zero by Jul-22. For now, however, we'll stick with our forecast for parity. With the ECB having bought EUR 9.8bln worth of debt in the first three days of the QE program, and with plenty more on the way, the euro is likely to remain in a secular downward path. Key EUR-USD resistance is at 1.0693-95 and 1.0700.

    [USD, JPY]
    USD-JPY has continued to oscillate in the 121s while EUR-JPY hit a 21-month low at 127.62 in Asia before rebounding to the upper 128s. Trend support drawn from last April lows through to late January lows projects scope for a move to the 125.25 area. USD-JPY logged a seven-and-a-half year peak at 122.03 earlier in the week, though upside momentum has subsequently ebbed. Support is at 120.47-50, which encompasses former daily highs from mid-February.

    [GBP, USD]
    EUR-GBP rebounded to the upper 0.70s in a euro led move. This put in some distance from yesterday's major-trend low at 0.7017, which is a seven-year-plus low. We still expect more downside as the ECB's quant buying program coming as the BoE draws nearer to a tightening has set the cross up for sustained declines. Resistance is at 0.7105 and 0.7171 (Monday's low). Sterling managed to rebound against the dollar, recouping the 1.5000 level after posting a low at 1.4893 yesterday, which is the lowest level seen since July last year. The minutes to last week's BoE MPC meeting will be published next week, on Mar-18, which we expect will show that the central bank isn't in any immediate rush to tighten policy (content that the recent dive in inflation and consequent real tightening is sufficient for now), though they will likely highlight increased focus on trending wage increases.

    [USD, CHF]
    EUR-CHF seems to be establishing a lower trading range after breaking free from the former orbit around the 1.0700 level amid general euro underperformance. The alleged "soft floor" of the SNB at 1.0500 is back in scope, though some market analysts (notably at UBS) contest the existence of this given the SNB's damaged credibility after failing to stop the tide at the former 1.2000 floor. The risks are skewed for more euro losses as the ECB QE program gets under way, which will likely test the resolve of the central bank. The SNB could respond by cutting interest rates deeper into negative territory, and perhaps pursue a tactical currency intervention policy aimed at keeping the market two sided rather than trend halting, per se. In extreme circumstances capital controls would be an option, though this looks unlikely.

    [USD, CAD]
    USD-CAD on Wednesday came within one pip of the cycle high at 1.2799, which is a key resistance level ahead of the August 2009 high at 1.3063. Lower oil prices have weighed on the Loonie just as last week's solid U.S. jobs report has boosting the USD's yield advantage as the Treasury market anticipates a mid-2015 Fed rate hike. Canada's February jobs report will be released this Friday, which we expect to paint a less-rosy picture than in the case south of the border, forecasting a modest 5.0k rise in the headline and unchanged unemployment of 6.6%.

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