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By XE Market Analysis March 18, 2014 8:00 am
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    XE Market Analysis: North America - Mar 18, 2014

    News that Russian parliament approved a draft bill on absorbing Crimea seemed to elicit a return to a more world-wary market sentiment. This saw the euro decline and the yen outperform. EUR-USD ebbed to the 1.3900 area during the European AM after flat-lining around 1.3903-40 in Asia. Yesterday's euro rally now looks as it if may have been an "on the fact" type trade, as euro shorts built up ahead of the Crimea referendum squared out post-event. Stocks have seen a similar action, and although Asia markets rose today, European bourses have drifted lower. USD-JPY drifted back under 101.50 after eking out a new rebound high of 101.94 during the Asia session, with the more risk-off tone supporting the yen during the London morning. EUR-JPY shed about 100 pips in making a low to 140.74.

    [EUR, USD]
    EUR-USD ebbed to the 1.3900 area during the European AM after flat-lining around 1.3903-40 in Asia. News that Russian parliament approved a draft bill on absorbing Crimea seemed to elicit a return to a more world-wary market sentiment. This saw the euro decline with yesterday's rally now looking as it if may have been an "on the fact" type trade, as shorts built up ahead of the Crimea referendum squared out post-event. Stocks have seen a similar action, and although Asia markets rose today, European bourses drifted lower. EUR-JPY shed about 100 pips in making a low to 140.74. We view EUR-USD as overvalued relative to Eurozone versus U.S. fundamentals, especially with the Fed expected to announce another $10 bln worth of tapering. Resistance comes in at 1.3947 (Monday's high) and 1.3966 (last week's trend peak). We target 1.3800.

    [USD, JPY]
    USD-JPY drifted back under 101.50 after eking out a new rebound high of 101.94 during the Asia session, with a more risk-off tone supporting the yen during the London morning. EUR-JPY shed about 100 pips in making a low to 140.74. Bigger picture, there is muted overall directional impetus in USD-JPY within the 100.00-105.00 range. BoJ policy would favour continued yen weakness, but the threat of China slowdown is an offsetting yen-supportive force, via the possible association of negative consequences on global stock markets (given the yen's normal inverse correlation with risk appetite). Support is at 101.00-101.22, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling is consolidating into the BoE minutes to the March MPC meeting. There are some bank analyst notes in circulation that are recommending a long sterling position into the minutes (due tomorrow), as there is a chance we will see some of the members displaying comparatively upbeat remarks about recovery prospects. We anticipate, however, that these would be offset by concerns about the strength of sterling, an issue touched upon during a press interview by BoE Deputy Governor Bean last week. The central message of the minutes may also stress that the output gap remains wide and that there should be no rush to tighten policy any quicker than prevailing market expectations for a first hike in Q2 2015. The case for Cable also has the Fed's FOMC on the radar, which we expect will announce a further $10 bln worth of tapering, which should be supportive of the dollar. On balance, we are bearish and target 1.6500..

    [USD, CHF]
    EUR-CHF has re-established itself under 1.2200 in recent weeks as geopolitical risk remains over the Ukraine and Crimea has returned support to the safe haven franc. China slowdown concerns are another factor. The recent cycle low of 1.2104 and 1.2100 are key support levels. SNB's Jordan said last week that the central bank would defend the 1.2000 limit if concerns about Ukraine drove the franc higher. We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000. The SNB has signalled that it would only consider removing it if inflation was much higher (CPI dipped back to -0.2% y/y in February).

    [USD, CAD]
    USD-CAD has been oscillating around the 1.1100 level since late February. In the bigger picture, we still think that the pair may be forming a potential topping formation. The pair's capping out just shy of 1.1200 on Feb-21 left the late January major trend peak at 1.1224 unchallenged. This price action has been accompanied by a drop in upside momentum, and together these developments point to a possible end of the bullish phase that was seen between October and January, in turn implying potential for a sustained retracement or a period of stasis. Support comes in at 1.1000, ahead of 1.0955 (the Mar-7 low).

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