Home > XE Currency Blog > XE Market Analysis: North America - Mar 25, 2014

AD

XE Currency Blog

Topics7698 Posts7743
By XE Market Analysis March 25, 2014 7:37 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5622
    XE Market Analysis: North America - Mar 25, 2014

    The euro corrected some of the sharp gains it saw during the New York PM session yesterday. The market reacted to remarks from ECB's Weidmann, who argued that negative interest rates could be a more effective tool in countering a strong euro than other measures. The March German Ifo also disappointed, and Russia was suspended from the G8 while G7 leaders warned of further sanctions. EUR-USD fell to 1.3804 low from an intraday peak of 1.3848, below yesterday's high of 1.3876. EUR-JPY and EUR-GBP saw a similar price action. The sharp euro gain we saw yesterday was likely sparked by a position exit from a long gold, short euro trade. The position was may have originally been put on ahead of the Crimea referendum as a hedge against spiralling geopolitical tensions, which don't look to have been as bad as feared as gold prices dropped quiet steeply over last week-and-a-half (over 5%). Elsewhere today, USD-JPY dipped just under Monday's low to 102.09 before firming. The in-favour Aussie managed to eke out a new trend peak against the USD to 0.9157, breaking above the Mar-18 high of 0.9138 and the 200-day moving average at 0.9141. This reportedly reflects a rising chance of fresh stimulus in China, which is Australia's biggest export client.

    [EUR, USD]
    The euro corrected some of the sharp gains it saw during the New York PM session yesterday. The market reacted to remarks from ECB's Weidmann, who argued that negative interest rates could be a more effective tool in countering a strong euro than other measures. The March German Ifo also disappointed, and Russia was suspended from the G8 while G7 leaders warned of further sanctions. EUR-USD fell to 1.3804 low from an intraday peak of 1.3848, below yesterday's high of 1.3876. EUR-JPY and EUR-GBP saw a similar price action. The sharp euro gain we saw yesterday was likely sparked by a position exit from a long gold, short euro trade. The position was may have originally been put on ahead of the Crimea referendum as a hedge against spiralling geopolitical tensions, which don't look to have been as bad as feared as gold prices dropped quiet steeply over last week-and-a-half (over 5%). We remain EUR-USD bearish as the ECB and U.S. Fed are on divergent paths, the former fighting a deflation threat while the latter is tapering QE assets ahead of an eventual rate hike.

    [USD, JPY]
    USD-JPY dipped just under Monday's low to 102.09 before firming. The pair 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 101.00-101.32, the latter of which marks the position of the 200-day moving average.

    [GBP, USD]
    Sterling is consolidating against the USD after recent losses, while EUR-GBP has been whipsawed over the last day due to euro-specific volatility. Cable logged a five-week low of 1.6460 on Monday, which extended what has now been a two-week trend lower. GBP-JPY has been consolidating near recent lows. Overall, we can see that sterling has been somewhat out of favour. Today's U.K. inflation saw headline CPI fall to a major-cycle low of 1.7% y/y, as expected, which will maintain the BoE's prevailing dovish policy stance. We continue to target Cable to 1.6400, with our former long-standing 1.6500 having been met. We would see this as part of a bigger-picture correction after the strong rally phase from July last year to February this year. Fundamentally we anticipate a moderation in the pace of U.K. recovery, while the U.S. Fed continues on its tapering track.

    [USD, CHF]
    EUR-CHF has recovered to the upper 1.21s. The SNB's decision to leave monetary policy unchanged last week while reaffirming the Swiss franc limit peg against the euro, had no market impact. The CHF has unwound a portion of its safe-haven premium following the placating tone of Russia's Putin earlier last week, though geopolitical tensions remain perky as the U.S. and the EU implements sanctions. The cycle low of 1.2104 has been left unchallenged during the recent risk-off phase. SNB's Jordan earlier in the month 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 settled to consolidation after surging last week through the late January major-trend peak at 1.1224 to make a new cycle high of 1.1278. This reaffirmed the bullish trend that was seen between October and January. Support comes in at 1.1173-75, ahead of 1.1100-15. We target 1.1350. The unexpected show of hawkishness from the U.S. Fed at the recent FOMC contrasts with the dovish stance of the BoC, and has seen yield differentials spike in favour of the U.S. dollar.

    Paste link in email or IM