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By XE Market Analysis May 18, 2017 7:24 am
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    XE Market Analysis: North America - May 18, 2017

    The yen continued to rally as the risk-off theme continued, while the dollar saw fresh lows against a range of currencies, though managed to subsequently lift somewhat against some. The pound, along with the Japanese currency, was another outperformer, led by a spike in Cable above recent trend highs and the 1.3000 level following strong UK retail sales data. The Canadian dollar was the principal underperformer, weighed on by a 1.5%-plus drop in oil prices. USD-CAD rose to a three-day peak of 1.3669. USD-JPY fell for a third straight session, hit as three-week low at 110.24, and was showing a 3.1% decline on the week as of the early European PM session. EUR-JPY continued to reverse recent gains, dropping sharply to a low of 122.56, nearly a big figure down on yesterday's closing level. EUR-USD settled in the lower 1.11s after logging a fresh six-month peak at 1.1171 during the Asian session. Cable rallied to a eight-month peak at 1.3046.

    [EUR, USD]
    EUR-USD settled in the lower 1.11s after logging a fresh six-month peak at 1.1171 amid dollar underperformance during the Asian session today. EUR-JPY, in contrast, reversed recent gains as the yen outperformed, dropping sharply to a low of 122.56, nearly a big figure down on yesterday's closing level and putting in some distance from the two-year high the cross saw on Tuesday. The ebb in EUR-JPY reflects yen outperformance as the Japanese safe haven premium rises. The Wall Street and global equity market wobble, amid concerns about the plight of the Trump administration, has been both generating yen outperformance and dollar underperformance, by eroding expectations for the Fed to hike at its FOMC in June, in the case of the latter. On the euro side of the equation, domestic data have been generally encouraging, which along with the abatement in political existential risk in the Eurozone following the French election earlier in the month, looks set to pave the way for the ECB to finally make a start at de-stimulating monetary policy. We recommend following the EUR-USD trend. Former resistance is at 1.1053-55 now reverts as support, while the high from last November at 1.1299 provides an upside marker.

    [USD, JPY]
    The yen rally extended. USD-JPY, down for a third straight session, hit as three-week low at 110.24, and was showing a 3.1% decline on the week. EUR-JPY continued to reverse recent gains, dropping sharply to a low of 122.56, nearly a big figure down on yesterday's closing level, and putting in some distance from the two-year high the cross saw on Tuesday at 125.81. Other yen crosses saw the same price action, driven by demand for the Japanese currency and its safe haven reputation. Unlike the narrow USD index, USD-JPY still remains some way above the levels prevailing at the U.S. presidential election last November. The pair was trading below 103.00 into the election in November. We recommend following the nascent downward trend in USD-JPY. Trend support is at 109.80, and resistance at 111.16-20.

    [GBP, USD]
    Sterling has rallied across-the-board following unexpectedly strong retail sales data out of the UK, with the official retail sales figure for April rising 2.3% m/m after a 1.4% n/n contraction in the previous month, more the double the median forecast for a much more moderate 1.0% m/m increase. Although the distorting effects of the late timing of Easter was at play, and the rolling three-month figure showed sales rising at a more modest 0.3% y/y underlying trend pace, the data was taken as a bullish cue in forex markets. The pound is presently showing an average 0.5% gain versus its G3 counterparts. With the dollar trading generally softer the market was perhaps looking for an excuse to take Cable through its (now former) 1.2990 trend high. The data provided the park, with the pair surging through here and 1.3000, triggering stop orders and option-related spot hedging. A high has been logged at 1.3046, which is the loftiest level seen since late September last year. The break marks a fresh leg of a two month bullish phase from levels near 1.2100. Trend resistance is at 1.3075-76, and support is at 1.2950.

    [USD, CHF]
    EUR-CHF has drifted to the lower 1.09s, putting in a little distance from the eight-month high that was seen last week at 1.0978. The cross remains well up on the sub-1.07 levels that were prevailing in April before the French presidential elections, which reflects an unwinding in franc safe-haven premium (of which there is still some despite a punishing -0.75% deposit rate).

    [USD, CAD]
    The Canadian dollar has been the principal underperformer today, weighed on by a 1.5%-plus drop in oil prices. USD-CAD rose to a three-day peak of 1.3669. A former trend resistance line at 1.3620 now reverts as a support level.

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