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By XE Market Analysis May 23, 2014 7:11 am
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    XE Market Analysis: North America - May 23, 2014

    The USD continued to hold firm. EUR-USD dove to three-month lows following a sub-forecast Ifo report, which fell to a headline reading of 110.4 in May from 111.2 with the expectations index falling for the first time since last October. EUR-USD logged a low of 1.3627 after breaching the 200-day moving average for the first time since last September. USD-JPY, meanwhile, jumped during the European AM session, making a nine-day peak of 101.96. The pair had been bid during the Tokyo trade, amid a bullish trend in Asian stock markets, though had been capped by Japanese exporter offers around 101.80-85. Elsewhere, Cable sank to a two-day low of 1.6838, though EUR-GBP still managed to fall to a 17-month low at 0.8081, breaching the 2013 low at 0.8085.

    [EUR, USD]
    EUR-USD dove to three-month lows on the weak Ifo. The low so far has been 1.3627, and, notably, the 200-day moving average has been breached for the first time since last September. This is now the seventh day out of the last 12 trading days that EUR-USD has logged a lower low. The next obvious target is the February 2013 low at 1.3584, while we continue to target 1.3500. Resistance now marked at 1.3650-55. The euro has weakened across-the-board, EUR-GBP to a 17-month low, and EUR-JPY to a two-day low, bringing Wednesday's three-month low back into scope. It has remained the case that there has been a distinct lack of substantive rebounds since the ECB-initiated drop on May-8. ECB-speak has remained dovish, and the recent generally more defensive tone in Eurozone peripheral bond markets and recent underperformance in European equities, despite expected ECB easing at the upcoming meeting in June, are bearish drivers of the euro. Incoming U.S. data, meanwhile, has and should continue to show recovery from the weather-affected Q1 performance. We anticipate EUR-USD will return to 1.3500 and below over the coming weeks, which will cover the period of the ECB's June meeting, Eurozone May inflation data, and U.S. May payrolls report.

    [USD, JPY]
    USD-JPY jumped during the European AM session, making a nine-day peak of 101.96. The pair had been bid during the Tokyo trade, amid a bullish trend in Asian stock markets, though had been capped by Japanese exporter offers around 101.80-85. Bigger picture, USD-JPY still 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]
    EUR-GBP logged a fresh 17-month low after breaching the January 2013 low at 0.8085, making a new low at 0.8081. This is the fourth consecutive day where a lower low has been seen, reflecting mostly broader euro weakness. Sterling drifted below Thursday's low against the dollar, and failed to hold gains above 1.6900 this week. We have been targeting 0.8000 in EUR-GBP, having been less bullish on Cable as we are bearish on EUR-GBP as we expect increasing signs of economic improvement out of the U.S., which should be supportive of the dollar.

    [USD, CHF]
    EUR-CHF has settled in the low 1.22s. The cross recently 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 recovered the 1.0900 handle. The pair has been in a correction/consolidation phase since late January following a four-month rally period from sub-0.9700 levels. A moderate bear trend had started to emerge, but the still-dovish outlook for BoC policy seemed to be put a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD.

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