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By XE Market Analysis May 5, 2014 6:52 am
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    XE Market Analysis: North America - May 05, 2014

    Trade was quiet with London closed for a U.K. public holiday. USD-JPY dipped below 102.00 for the first time in nearly three weeks as the yen found support amid a risk-off theme in Asia following a sub-expectations final reading of China HSBC-Markit manufacturing PMI for April, which came in at 48.1 versus the expected 48.4. Asian stocks declined on this data, and the yen followed its usual inverse correlation with equities. The data also weighted on the AUD somewhat, though an above-forecast TD price gauge, of +0.4% m/m, helped limit the losses. AUD-USD dipped to a low of 0.9252 before settling around 0.9270. A couple of forays above 0.9300 didn't last long, similar to what we saw last week. Elsewhere, EUR-USD traded in a sideways manner, around 1.3870-80, and Cable did the same, around 1.6870-80. EUR-CHF dipped and matched the Apr-28 low as the Swiss franc safe-haven premium rose as the situation in Ukraine continued to deteriorate.

    [EUR, USD]
    We remain EUR-USD bearish. As the Fed noted following its FOMC meeting last week, the U.S. economy should pick-up through the year after weather-affected Q1 conditions. The threat of deflation, meanwhile, may have receded in the Eurozone, but low inflation is likely to persist for some time, while weak confidence data suggest the ECB will still implement further stimulus measures, albeit not the 'big bazooka' policy effort that was hitherto seen as a possibility. The 1.3900 and the Apr-12 six-week peak at 1.3905, along with the major-trend high at 1.3966, form a key resistance zone.

    [USD, JPY]
    USD-JPY dipped below 102.00 for the first time in nearly three weeks as the yen found support amid a risk-off theme in Asia following a sub-expectations final reading of China HSBC-Markit manufacturing PMI for April, which came in at 48.1 versus the expected 48.4. Asian stocks declined on this data, and the yen followed its usual inverse correlation with equities. Bigger picture, the pair is amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year. Fundamentals seem more bullish, however, as Fed and BoJ policy paths are likely to become more divergent.

    [GBP, USD]
    Cable has settled back below 1.6900 after clocking a new-major trend peak of 1.6923 in the wake of the stellar manufacturing PMI data out of the U.K. last week., though this was offset by sub-expectations construction PMI. We continue to target 1.7000. The services PMI this Tuesday should come in at a robust level. Support is marked at 1.6850.

    [USD, CHF]
    EUR-CHF dipped and matched the Apr-28 low as the Swiss franc safe-haven premium rose as the situation in Ukraine continued to deteriorate. The cycle low of 1.2104 and 1.2100 are considered key support levels. While situation in the Ukraine remains a concern, and a potential supportive factor for the CHF, the threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying to some extent. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD gave up the chase above 1.1000 and slipped to around 1.0950. There are reports that oil settlement inflows have underpinned the Canadian currency in a relatively illiquid market. There doesn't appear to have been a fundamental driver. The Arp-9 three-month low of 1.0858 now swings back into view. Bigger picture, USD-CAD has been in a consolidation phase since late January following a four-month rally period from sub-0.9700 levels. We'd need to see daily and weekly closes below 1.1000 to support the idea that a trend reversal is on the cards.

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