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By XE Market Analysis May 28, 2015 7:12 am
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    XE Market Analysis: North America - May 28, 2015

    USD-JPY logged traded at its highest since 2002, the AUD took at hit on unambiguously weak Australian capital expenditure data, while a general euro rebound saw EUR-USD recoup to the mid-1.09s after leaving a one-month low at 1.0831 yesterday. An above-forecast Eurozone ESI confidence reading for May, of 103.8, aided the euro's rebound, even though the ECB stated in its latest Financial Stability Review that "sovereign risks emanating from Greece" had "increased sharply." USD-JPY logged a 12-year peak at 124.30 on the nominal price chart after taking out the June 2007 high at 124.16. The December 2002 high at 125.72 provides the next big-picture focal point. The yen also logged a nine-day low against the euro today, although the Australian dollar beat it to the title of underperformer of the day. AUD-USD dove to a six-week low of 0.7653, while AUD-JPY reversed from nine-day highs to two-week lows following Australian Q1 capex, which came in at -4.4%, twice as bad as the median forecast.

    [EUR, USD]
    EUR-USD logged a rebound high of 1.0950 during the London AM session, extending from the one-month low seen on Wednesday at 1.0819. The move breached yesterday's high at 1.0929, but stalled shy of the 50-day moving average at 1.0955. An above-forecast Eurozone ESI confidence reading for May, of 103.8, unchanged from April, aided the euro's rebound, though the ECB stated in its latest Financial Stability Review that "sovereign risks emanating from Greece" had "increased sharply." We expect EUR-USD to retain an overall bias to the downside. There has been no change in the dominant bearish narrative that has driven the pair some 4% lower in eight of the last nine trading days after making a three-month peak 1.1486 on May-15: the continued lack of substantive progress in Greece's bailout negotiations, and the rekindled Fed tightening theme. We see potential for a return to March-April lows at 1.0462 and 1.0520.

    [USD, JPY]
    USD-JPY took out the June 2007 high at 124.16, since dipping back under 124.00 before recovering back above here. A 12-year peak at 124.30 has been made on the nominal price chart. The December 2002 high at 125.72 provides the next big-picture focal point. The yen also logged a nine-day low against the euro today, with the Japanese currency winning the race to the underperformer of the week title. BoJ deputy governor Iwata remarks yesterday that he sees no need for further easing have had little impact on the forex market as the ultra loose 'Abecomics' monetary policies are still likely to be remaining in force when the Fed eventually does reach rate hike lift-off. This backdrop should maintain an upside bias in USD-JPY.

    [GBP, USD]
    Sterling continues to trade mixed against the dollar and the euro. Cable left an eight-week low at 1.5301 yesterday, since steadying before coming under mild pressure after the second estimate of UK Q1 GDP was left unrevised at 0.1% q/q and 2.4% y/y, contrary to expectations for a one basis point revision on both counts. The UK PM commenced EU reform talks at the leaders summit in Riga last week just as the debate in the UK about EU membership, ahead of a pledged in-out referendum by 2017, kicks off in earnest. Airbus and Deutsche Bank waded in with threats to shift out a big chunk of their UK operations if the nation decided to quit the European Union. This background creates uncertainty for long-term investors, although the prevailing good fundamentals of the economy should prove an offsetting tonic, for now, especially as there seems reasonable ground to believe that the UK will eventually vote to remain in the EU. Cable is likely to remain entrenched below 1.5500 following a dive from the post-election peak of 1.5815.

    [USD, CHF]
    EUR-CHF is back below 1.0400 level as the euro trades broadly lower. SNB's Zurbrugg said last week that negative rates in force for as long as policy requires. This is the new boilerplate rhetoric of Swiss policymakers, who are in persisting fight to curtail EUR-CHF's downside, though their options will be limited in context of broad euro underperformance. The central bank 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 SNB said at its last policy review in March that the franc is "significantly overvalued," and would "remain active in the foreign exchange market, as necessary."

    [USD, CAD]
    USD-CAD's rebound from sub-1.2000 levels extended to 1.2494. USD-CAD left a four-month low at 1.1920 on May-14, but we didn't see a convincing break of the big-picture support region at 1.1950-1.2000. The pair has now breached back above a previous support zone marked by 1.2351 to 1.2400, which leaves a convoluted technical picture. Resistance is 1.2500, support at 1.2450.

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