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By XE Market Analysis May 14, 2014 7:01 am
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    XE Market Analysis: North America - May 14, 2014

    GBP took a dive following a disappointing labour market report that was quickly backed-up by the BoE May Inflation Report, which unexpectedly left GDP and CPI projections largely unchanged while signalling that there remains no rush to hike interest rates. Cable dove over 100 pips in making 1.6758, and EUR-GBP also spiked as the pound took a beating. Elsewhere, EUR-USD price action was uneventful, holding around the 1.3720 area, about 30 pips up on the 1.3690 low that was seen during the New York PM session yesterday. USD-JPY dipped back under 102.00, to the 101.70 area. Japan's CGPI price gauge came in slightly above expectations at +4.1% y/y in April, up from 1.7% in March. AUD-USD made a peak of 0.9412, the first time on a 0.94 handle since Apr-15, tracking a pop high in the NZD after RBNZ's Wheeler said that a tightening could address price inflation.

    [EUR, USD]
    EUR-USD managed recover back above 1.3700 after seeing a new low of 1.3690 during the New York PM session on Tuesday. The EUR-USD market has turned sharply bearish, which had been in evidence by the lack of rebounds since the sharp ECB-induced loss of last Thursday-Friday before the fresh tumble, to sub-1.37 levels. A UBS research note, for instance, argues EUR-USD will fall to sub-1.3400 levels over the coming four weeks, based on forecasts for May Eurozone CPI and the May U.S. payrolls report, along with ECB action at its June policy meeting (UBS anticipates that the depo, refi and marginal rates will all be trimmed by 15 bp, but also argues that a narrower easing would still be a euro-selling catalyst). Resistance is now marked at 1.3774-80 (which encompasses the Apr-30 low) and 1.3800-15. On the downside, the Apr-4 low at 1.3672 offers the next target.

    [USD, JPY]
    USD-JPY dipped back under 102.00, to the 101.70 area. Japan's CGPI price gauge came in slightly above expectations at +4.1% y/y in April, up from 1.7% in March. USD-JPY remains entrenched 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.

    [GBP, USD]
    GBP took a dive following a disappointing labour market report that was quickly backed-up by the BoE May Inflation Report, which unexpectedly left GDP and CPI projections largely unchanged while signalling that there remains no rush to hike interest rates. Cable dove over 100 pips in making 1.6758, and EUR-GBP also spiked as the pound took a beating. Data's data and BoE report is a game change for the near-to-medium term outlook of sterling as the market had clearly got ahead of itself with regard to BoE tightening expectations. While the labour report wasn't exactly bad, with unemployment dipping to a new cycle low of 6.8% from 6.9%, the claimant data pointed to a slackening in the pace of decline while average income data unexpected dipped to 1.3% y/y, below CPI inflation, which is 1.6%. This backs up BoE arguments that there remains a good degree of slack in the economy. We look for Cable to revisit 1.6700 and below, though we don't anticipate too potential for sustained losses below 1.6500.

    [USD, CHF]
    EUR-CHF has re-established a sideways direction anchored around 1.2200, having recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are key support levels. 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 firmed back to around 1.0900 after running to a low of 1.0812 on Friday. The pair had been in a consolidation phase since late January following a four-month rally period from sub-0.9700 levels, with the bias having tilted to the downside. However, the still-dovish outlook for BoC policy seems to be putting a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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