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By XE Market Analysis May 5, 2015 6:05 am
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    XE Market Analysis: North America - May 05, 2015

    The euro took another turn lower, concomitantly with a rise in the Greek 10-year benchmark yield above 11% amid continued reports that significant differences remain between Greece and its creditors at the bailout negotiation table. EUR-USD logged a five-day low at 1.1066 after breaching Monday's 1.1123 low. EUR-JPY, EUR-GBP and other euro crosses saw similar price actions. Elsewhere, USD-JPY lifted above recent highs to a three-week peak at 120.31, even though EUR-JPY dipped to a five-day low. Sterling remained heavy against the dollar after underperforming notably over the last two trading days as markets finally wake up to the sea-change in UK politics that Thursday's general election is set to mark. Cable logged an 11-day low of 1.5089, though the pound managed to recover some lost ground against the euro. AUD-USD saw fairly extreme volatility in the wake of the RBA announcing a largely as expected rate cut, tumbling over 50 pips to a 0.7795 low before rebounding sharply to a high just above 0.7900. The pair finally settled in the mid-to-upper 0.78s. The RBA cut its cash rate by 25 bp to a record low of 2.0%, as was largely expected. The central bank said in the statement that a further fall in the Australian dollar is necessary, though made upbeat remarks about employment trends and the housing market.

    [EUR, USD]
    The euro took another turn lower. EUR-USD logged a five-day low at 1.1066 after breaching Monday's 1.1123 low. EUR-JPY, EUR-GBP and other euro crosses have seen a similar price action. News that the IMF is threatening to hold back its portion of the aid package that Greece is trying to secure has rattled the euro. The FT reports that the IMF thinks Greece remains far from meeting the conditions of its bailout. This follows news reports from weekend negotiations that fundamental differences remain between the Greek government and creditors, particularly on pension reform and privatisation proposals. Also, on the dollar side of EUR-USD's coin, the upcoming release of the April U.S. payrolls report should be dollar supportive, we think, as the report should show a rebound from March's unexpected weakness. EUR-USD support is at 1.1066-71 (which encompasses the intraday low and last Thursday's low), and resistance at 1.1123-25 and 1.1150-55.

    [USD, JPY]
    USD-JPY lifted above recent highs to a three-week peak at 120.31, though EUR-JPY dipped to a five-day low, which is reflective of broader euro underperformance today. USD-JPY has found an underpinning after the BoJ last week lowered its inflation and growth forecasts for both the current and next fiscal years in its updated median-term projections. The revised forecasts will keep open the possibility of the BoJ making further stimulus later in the year. USD-JPY support is 119.75-89, which encompasses last Thursday's high and the 50-day moving average. Bigger picture, the pair is trending broadly sideways, having been orbiting the 120.00 since December. We expect an eventual breakout to the topside as the U.S. economy recovers traction following its Q1 soft patch.

    [GBP, USD]
    Sterling has underperformed notably over the last two trading days as markets finally wake up to the sea-change in UK politics that Thursday's general election is set to mark. The polls put the right-leaning Conservative Party in the lead, but well short of an outright majority, which leaves the possibility of a weak left-leaning Labour-SNP (Scottish Nationalist Party) coalition government forming. Labour has big plans to restructure British capitalism, though its mandate will be weak, while the SNP's ultimate objective is to break the UK up. Cable is presently settled in the low-1.51s after last week's sharp U-turn from a high at 1.5498. The rally to that high is proving to have been an aberration, and we are anticipating a return to sub-1.50 levels soon.

    [USD, CHF]
    EUR-CHF has ebbing lower after making a one-month high at 1.0508 last week, reflective of general euro selling as there remains little sings of breakthrough in Greek negotiations with its creditors. Lows were seen under 1.0400 today. The SNB last month expanded the number of groups subject to negative rates on deposits at the central bank in a fresh effort to curtail demand for the franc. The central bank said at its March policy review that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary." SNB Chairman Jordan said recently that "we will remain active in the foreign exchange market as necessary in order to influence monetary conditions."

    [USD, CAD]
    USD-CAD has settled around 1.2100 after a three-day recovery from 1.1944. Bigger picture, the fall in USD-CAD from levels above 1.2700 during the mid-to-latter part of April is technically significant as it smashed the series of range lows established over the last four months in the 1.2351 to 1.2400 region. These levels now revert as strong resistance markers, and the overall bias is likely to remain lower. A big-picture support region at 1.1950-1.2000 remains in play.

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