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By XE Market Analysis May 14, 2019 7:21 am
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    XE Market Analysis: North America - May 14, 2019

    The Dollar has been trading mixed, gaining versus the Yen and Swiss franc, both of which have underperformed as safe haven premiums unwind following some conciliatory-sounding remarks from President Trump yesterday, while losing ground to the Dollar bloc currencies and holding near net unchanged levels versus the Euro. USD-JPY lifted 0.4% to an intraday high of 109.77, and EUR-JPY nearly 0.5%. EUR-USD held in a narrow range in the lower 1.1200s, remaining comfortably below yesterday's two-week high at 1.1263. Eurozone data today have included an as-expected 0.3% m/m contraction in March industrial production, while German ZEW investor confidence unexpectedly declined to -2.1 in the May reading from 3.1 in the previous month. ECB's Villeroy said that recent data underscore a "significant, but temporary slowdown" while caveating that "notwithstanding persistent and substantial geopolitical uncertainties." European stock markets and S&P 500 futures gained, and while Asian equity markets mostly showed declines, most pared steep losses seen in early trading. China's State Councillor Wang Yi said that both sides that have the "wisdom to resolve each other’s reasonable demands," though Beijing communicated via editorials in state-backed media a much tougher stance, blaming the trade war on "one person and his administration and asserting that the U.S. is misjudging China's "capability and willpower." Elsewhere, Sterling recouped lost ground after posting two-week lows versus the Dollar, and respective eight-week and four-month lows against the Euro and Yen. Cable's low is 1.2923, capping a quite-steep decline from the early May peak at 1.3176. UK labour data showed unemployment unexpectedly falling to 3.8% in March, which is the lowest rate seen since December 1974, though wage data weakened more than expected.

    [EUR, USD]
    The Euro has traded generally firmer, recouping ground lost against the Yen and Swiss Franc yesterday as markets unwind safe haven premiums following conciliatory-sounding remarks from President Trump. EUR-JPY is showing a gain of 0.5%, making it the biggest mover out of the main dollar pairings and associated cross rates. EUR-GBP earlier printed an eight-week high, and although since correcting some remains net higher on the day. EUR-USD has lifted modestly but has remained comfortably below yesterday's two-week high at 1.1263. Eurozone data today have included an as-expected 0.3% m/m contraction in March industrial production, while German ZEW investor confidence unexpectedly declined to -2.1 in the May reading from 3.1 in the previous month. ECB's Villeroy said that recent data underscore a "significant, but temporary slowdown" while caveating that "notwithstanding persistent and substantial geopolitical uncertainties." Big picture, we still view EUR-USD as remaining in a bear trend which has been evolving since early 2018. The pair has been in a rebound phase over the last two weeks after posted new trend lows in both March and April. Resistance comes in at resistance at 1.1264-65.

    [USD, JPY]
    The Yen has softened today amid a modest correction in risk-off positioning in forex markets, which has been concomitant with a 0.4% rebound in S&P 500 futures after the cash version of the index closed on Wall Street with a 2.4% loss. Asian equity markets are mostly showing declines, though most have pared steep losses seen in early trading. Both U.S. and China have given mollifying remarks to investors. China's State Councillor Wang Yi said earlier that both sides that "the ability and wisdom to resolve each other’s reasonable demands, and in the end reach a mutually beneficial, win-win agreement." President Trump for his part said that he will meet with President Xi at the late-June G20 summit, while Treasury Secretary Mnuchin stated that talks with China remain ongoing. At the same time, the Trump administration let in be known that it is preparing to slap tariffs on remaining Chinese imports. USD-JPY lifted back to the mid-to-upper 109.00s, up from the three-month low seen yesterday at 109.02. The biggest movers out of the main currencies have been AUD-JPY and NZD-JPY, crosses which are directionally sensitive to China-related sentiment swings. AUD-JPY has lifted back above 76.00 after yesterday printing a four-month low at 75.73. Assuming things are likely to get worse before then get better with regard to U.S and China trade relations, the Yen would seem likely to appreciate. USD-JPY has support at 109.00-02, and resistance at 110.05-08.

    [GBP, USD]
    Sterling has firmed up after posting two-week lows versus the Dollar, and respective eight-week and four-month lows against the Euro and Yen. Cable's low is 1.2923, capping a quite-steep decline from the early May peak at 1.3176, which is the loftiest point reached over the last six weeks. Prime Minister May's government and the Labour Party are looking unlikely to reach an accord on a Brexit compromise, while the newly created Brexit Party, which supports leaving the EU without a deal, has taken a strong lead in polls ahead of the May-23 elections for the EU Parliament. There has also been increasing signs that prolonged political uncertainty has been having a deleterious impact on the UK economy, particularly in business investment. Cable has resistance at 1.2967-70, and support at 1.2904-05.

    [USD, CHF]
    EUR-CHF dove to a one-month at 1.1288 before finding a toehold and lifting back above 1.1300. This dive yesterday came amid renewed risk-off position in global markets as tensions between the U.S. and China on trade ratcheted higher, which rekindled the Franc's hitherto latent safe haven appeal, despite the SNB's -0.75% deposit rate. EUR-CHF has resistance at 1.1320-23.

    [USD, CAD]
    USD-CAD has consolidated towards the upper reaches of the recent range, above 1.3450 after rebounding from the two-week low seen at 1.3388 last Friday following the bearish combo of soft U.S. April CPI data and forecast-beating strength in Canada's April employment report. Yesterday's bout of risk aversion in global markets, with investors bracing for a new phase of impasse and higher tariffs on the U.S.-China trade front, saw the Canadian Dollar, like its Dollar bloc brethren, come under pressure. We continue to expect USD-CAD to revisit, and break above, its trend peak at 1.3521. Support comes in at 1.3400-05.

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