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By XE Market Analysis March 13, 2018 7:19 am
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    XE Market Analysis: North America - Mar 13, 2018

    Yen weakness has been the main theme, with the dollar itself mostly direction outside the case of USD-JPY, which ran to two-week highs. market participants will be paying close attention to the U.S. February release later Last month's sub-forecast release prompted a fairly steep drop in the dollar. We expect an unchanged 2.1% y/y outcome in headline CPI, which matches the median forecast.

    [EUR, USD]
    EUR-USD is trading without direction, having ebbed back from the Asia-session high at 1.2345 and then recouping from intraday low at 1.2314 and settling around 1.2330. EUR-JPY has traded at three-week highs on the back of yen underperformance, while most other euro crosses are chopping broadly sideways. In the bigger view, EUR-USD has returned to midway levels of a range that's been seen since late January, which marks a consolidative phase after rallying out of sub-1.1600 levels that were seen last November. More of the same looks likely for now, though market participants will be paying close attention to the U.S. February release later Last month's sub-forecast release prompted a fairly steep drop in the dollar. We expect an unchanged 2.1% y/y outcome in headline CPI, which matches the median forecast. EUR-USD has support is at 1.2275.

    [USD, JPY]
    USD-JPY logged a fresh two-session high of 107.03, coming within 2 pips of last week's two-week high. A position close on the Tokyo Stock Exchange, and modest gains in U.S. index futures and on European bourses have been helping keep the yen on a back foot. In the bigger view, the yen has been trading in a relatively narrow sideways pattern over the last week, and USD-JPY is near to the midway point of the range that's been seen over the last month. There have been yen bullish market narratives in circulation this year rooted on the expected impact that the BoJ's eventual withdrawal from ultra-accommodative monetary policy will have, though recent parliamentary testimonies of BoJ members suggested the focus of policymakers remains squarely on the chronically benign inflation picture. We see USD-JPY as more likely seeing 110.00 than of seeing 100.00. USD-JPY has support at 106.25.

    [GBP, USD]
    Cable has been in consolidation mode over the last week, centred on 1.3800-1.3900. Brexit-related noise continues to spout forth, but remains too inconclusive to impart much directional bias on sterling. The ECB is in the process of formalizing a response to the laid-out UK position on Brexit. The next key day is March 22nd, the next EU leaders' summit, and following that the two sides will look to hammer out a concrete agreement (on a future trading relationship, the Irish border and a transition period) before October this year, which would leave the 27 EU countries time to ratify it before March 29th next year, when the UK formally leaves the EU and, most likely, when a two-year transition period starts before the UK will fully break free of the single market, customs union, and the jurisdiction of the European Court of Justice. It's more than probable that a new trade deal will need much more time to be agreed on (the Canadian-EU trade deal was seven years in the making).

    [USD, CHF]
    EUR-CHF has been upwardly mobile since late February, clocking a six-week high at 1.1741 last Thursday. The break higher has tracked a broader rebound in the common currency, with markets finding some relief as the new political picture starts to emerge following the Italian election on Sunday. While the results were messy, and brought Eurosceptic parties to the fore, the general view is that neither the euro or the EU will face an existential crisis. The EUR-CHF cross, which rallied some 10% from mid last year, has been emblematic of the euro's recovery over the last year, with the franc unwinding latent safe haven premium as existential uncertainties under the Eurozone and EU come off the boil. Former resistance is at 1.1563-65 now reverts as support.

    [USD, CAD]
    USD-CAD has lifted for a second day, logging a two-session peak at 1.2861. This follows a four-day run lower as the Canadian dollar found its feet following news that Trump will exempt Canada, along with Mexico, from his proposed steel an aluminium tariffs (although temporary and subject to how the White House sees NAFTA negotiations go). We anticipate that USD-CAD will remain in a consolidation for now. Momentum indicators had been flashing "overbought" lately following a strong six-week rally from sub-1.2300 levels, which capped out last week at 1.3001, which is an eight-month high. Today's Canadian calendar is quiet, highlighted by a speech by BoC Governor Poloz.

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