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By XE Market Analysis March 19, 2014 8:01 am
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    XE Market Analysis: North America - Mar 19, 2014

    Sterling outperformed following solid U.K. data, the CNY sank to fresh lows, while the USD traded moderately firmer against most of the other main currencies, with most pairings remaining well within their respective Tuesday ranges. EUR-USD saw a low of 1.3904 before settling around 1.3920. USD-JPY lifted to the 101.60-70 area. GBP-USD was an exception as sterling caught a bid following above-forecast U.K. labour market data. The BoE minutes, meanwhile, showed a unanimous MPC vote to leave policy unchanged, while the tone didn't warrant too much of a rethink in markets with regard to the prevailing expectation for a 0.25bp hike in the repo rate in Q3 2015. Cable rose to a peak of 1.6644 from sub-1.66 levels. EUR-GBP dove to a low of 0.8371, breaching Tuesday's low en route. The yuan dropped below 6.2000 for the first time since last April after the PBoC cut the reference rate to 6.1351, with the currency trading just over 1% below here, the biggest gap since 2007.

    [EUR, USD]
    EUR-USD has returned to familiar territory around the low 1.39s after recent Crimea news related chop. Markets have so far pretty much ignored last week's remarks from ECB boss Draghi, who made it clear that EUR strength has become a policymaker concern, which increases the odds of easing measures over the coming months. It should be noted that outperformance of the euro since early February may have been driven by China reserve building (according to the FT which last week cited market analyst insight). We view EUR-USD as overvalued relative to Eurozone versus U.S. fundamentals, especially with the Fed expected to announce later on Wed 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 slightly high to levels around 101.50, having remained well within yesterday's range. Japanese trade balance for February disappointed at -Y800.3 bln (-Y 600.0 bln had been the median forecast), while the March Reuters Tankan report for Japan manufacturers came at +18 in March, unchanged from February, and the All Industry Activity Index came in at +1.0% m/m in Jan. Bigger picture, USD-JPY looks stuck within a 100.00-105.00 band. 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 101.00-101.23, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling caught a bid following above-forecast U.K. labour market data. The BoE minutes, meanwhile, showed a unanimous MPC vote to leave policy unchanged, while the tone didn't warrant too much of a rethink in markets with regard to the prevailing expectation for a 0.25bp hike in the repo rate in Q3 2015. The minutes did, however, show that MPC members are concerned by the high level of sterling, though the market overlooked this for now. Cable rose to a peak of 1.6644 in the wake of the data, from sub-1.66 levels. EUR-GBP dove to a low of 0.8371, breaching Tuesday's low en route. The bigger picture is somewhat muddy for sterling.

    [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 spiked toward 1.1200 on Wednesday, breaking above recent range highs. The Feb-21 peak at 1.1195 and 1.1200 are key resistance levels, ahead of the late January major trend peak at 1.1224. A break above here would reaffirm the bullish trend that was seen between October and January. Support comes in at 1.1100-15, ahead of 1.1000 and 1.0955 (the Mar-7 low).

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