Home > XE Currency Blog > XE Market Analysis: North America - Mar 26, 2018


XE Currency Blog

Topics6593 Posts6638
By XE Market Analysis March 26, 2018 7:33 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4539
    XE Market Analysis: North America - Mar 26, 2018

    The dollar and yen traded softer against most other currencies as risk appetite rebounded in global markets after U.S. Treasury Secretary Mnuchin said that there has been "productive" talks with China. This helped allay investor anxieties about prospects for an escalating trade way. Most stock markets rallied in Asia and Europe, while S&P 500 and Nasdaq futures rallied by over 1.3% and 1.6%, respectively, in the overnight session, pointing to a strong positive open on Wall Street later. The narrow trade-weighted USD index (DXY) was showing a 0.2% decline as of the early PM session in Europe. EUR-USD clocked an 18-day high at 1.2416, Cable posted a seven-week high at 1.4224, and USD-CAD traded softer, though remained shy of the two-week high of last week. The Australian and New Zealand dollar also posted gains. USD-JPY was an exception as the yen underperformed as markets fade risk premiums. The pair recouped above 105.00, putting in some space from the 16-month low that was seen last week at 104.64. Sterling has been the day's outperformer so far, racking up a 1% gain versus the yen, and also advancing against the euro.

    [EUR, USD]
    EUR-USD rallied to an 18-day high of 1.2416 on the back of a broader drift lower in the dollar. Recovering risk appetite after U.S. Treasury Sectary Mnuchin said there has been "productive " talks with China helped allay fears of trade wars, and indirectly led to a downward drift in the dollar as demand for risk assets revitalizes. Last week's Fed rate hike was well anticipated, while its guidance was a tad less hawkish than most expected. The countdown to when the ECB will commit to ending its QE program continues, meanwhile. In the bigger view, EUR-USD has settled near the midway levels of a consolidation range that's been seen for nearly two months now, which follows a 14-month rally phase from sub-1.0500 levels. We anticipate more of the same for now. Support comes in at 1.2324-25, and 1.2400.

    [USD, JPY]
    USD-JPY recouped to 105.10, just over 30 pips up on Friday's closing level, with some of the yen safe haven premium being unwound today amid a backdrop of steadying stock markets after U.S. Treasury Secretary Mnuchin spoke of there having been "positive" talks with China. AUD-JPY rebounded sharply, by some 1%. The cross had dropped sharply in the latter part of last week, and the recovery today reflects the counter-trade to last week's spike in risk-aversion plays. Most markets in Asia rallied out of intraday losses, while the S&P 500 futures gained over 1%. While markets have come up for air, participants will remain wary of further dives, which will depend on how and to what extent Trump-led protectionism take a grip.

    [GBP, USD]
    Sterling has outperformed today, racking up a 1% intraday gain versus the yen, and rising by 0.7% against the dollar and gaining, too, on most other currencies. This saw Her Majesty's currency smash through the highs it posted in the immediate wake of the BoE policy announcement last Thursday, which delivered the widely expected no-change decision with the unexpected twist of there being two of the nine MPC members having voted for a quarter point hike. We advise trend-following for now, though concurrently entreat some wariness given Brexit-related risks and expected continuation of relative underperformance of the UK economy relative to its major peers. BoE MPC member Vlieghe said on Friday that the central bank's ongoing "gradual" tightening bias -- of between one and two 25 bp repo rate hikes per year over the forecast horizon -- is warranted amid the mix of a tightening labour market and global tailwinds versus the risks presented by Brexit-related headlines. We see Cable as being in process of establishing a range in the low 1.4000s, after rising from early-March levels near 1.3700.

    [USD, CHF]
    EUR-CHF has settled below the two-month high seen last week at 1.1749. The high was seen following a media report that the ECB is shifting its focus to the rate path, which gave the euro a broad bid. The SNB this month announced unchanged policy following its quarterly policy review, as had been widely anticipated, while reaffirming its commitment to monetary stimulus to keep what it still considers a richly-valued currency on a back foot. EUR-CHF 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. Even though Eurosceptic parties won about 50% of the vote in Italy's recent general election, the governing political alliance led by La Lega has indicated that Italy will remain in the EU and retain the euro.

    [USD, CAD]
    USD-CAD drifted about 30 pips low in making a low at 1.2848. Last week's two-week low at 1.2824 has remained unchallenged. News of progress on the NAFTA front, with the U.S. last week dropping its contentious auto-content proposal, has given the Loonie a footing. Former consolidation support at 1.3045-47 has now reverted as a resistance level. A $5-odd rebound in oil prices over the last week has also been a positive lead for the Canadian buck.

    Paste link in email or IM