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By XE Market Analysis November 1, 2018 7:15 am
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    XE Market Analysis: North America - Nov 01, 2018

    The Dollar has come under broad pressure, losing over 0.5% to the Euro, nearly 1% to the Pound and comfortably more than 1% against the Australian and New Zealand Dollars. EUR-USD posted a rebound high of 1.1388 in what is the first daily back-to-back gain in three weeks. USD-JPY has been left out of the action, having been plying a narrow range in the upper 112.0s so far today, while most Yen crosses have lifted, led by strong gains in AUD-JPY, NZD-JPY and GBP-JPY, which has been seen amid a backdrop of overall improved risk appetite in global stock markets. Data showing Australia racked up a bigger trade surplus than expected provided a catalyst for AUD-USD and AUD-JPY buying, while news that the UK and EU have tentatively agreed a deal that would allow UK financial services companies continued access to EU markets after Brexit helped give Sterling a boost. Cable gained over 1% in printing a one-week high at 1.2941. GBP-JPY also rallied into one-week high territory, while EUR-GBP staged its biggest intraday decline since August 29. A much weaker than forecast manufacturing PMI survey outcome out of the UK only put a dent in the Pound's advance. Regarding the Brexit news, we would advise caution as the principal obstacle to a Brexit deal being done -- the Irish border backstop plan -- remains unresolved. The BoE announces monetary policy later, but this will likely be a non-even for markets, with no changes expected, although upwardly nudged inflation projections are probable.

    [EUR, USD]
    EUR-USD posted a rebound high of 1.1388 in what is the first daily back-to-back gain in three weeks. The pair has since settled around the 1.1375 mark, remaining comfortably above yesterday's four-month low at 1.1302. We remain bearish of EUR-USD with signs of flagging economic growth momentum in the Eurozone, along with concerns about the Eurosceptic political movement, juxtaposing a U.S. economy in relative health (still) with the Fed remaining on a tightening track. EUR-USD resistance comes in at 1.1412-15.

    [USD, JPY]
    USD-JPY has been plying a narrow range in the upper 112.0s so far today, while most Yen crosses have lifted, led by strong gains in AUD-JPY, NZD-JPY and GBP-JPY, which has been seen amid a backdrop of overall improved risk appetite in global stock markets. Data showing Australia racked up a bigger trade surplus than expected provided a catalyst for AUD-USD and AUD-JPY buying, while news that the UK and EU have tentatively agreed a deal that would allow UK financial services companies continued access to EU markets after Brexit helped give Sterling a boost. AUD-JPY, which has recently been trading at two-year lows, rose by over 1%. USD-JPY's fundamentals (yield differentials and the associated contrast between Fed and BoJ policy paths) remain supportive, although periodic episodes of risk aversion has been an intermittent offsetting bearish force. USD-JPY has support at 112.35-37.

    [GBP, USD]
    Sterling has posted a short-squeeze fuelled rebound today, although a much weaker than forecast manufacturing PMI survey outcome out of the UK put a dent in the currency's advance. News that EU and UK have reached a tentative agreement to allow UK financial service companies continued access to EU markets post Brexit, according to a report in the London Times, was the spark for interbank traders and short-term speculative accounts to initiate a squeeze dynamic in a market running a heavily short net exposure to the Pound. Cable gained over 1% in printing a one-week high at 1.2941. GBP-JPY also rallied into one-week high territory, while EUR-GBP staged its biggest intraday decline since August 29. Regarding the Brexit news, we would advise caution as the principal obstacle to a Brexit deal being done -- the Irish border backstop plan -- remains unresolved, while even if a deal is reached it looks unlikely that it would pass in parliament given the deep divisions in the Tory-DUP governing alliance, and the Labour Party. The BoE's announces policy at midday in London. No changes are widely anticipated for either the repo rate or QE. The central bank's quarterly Inflation Report will provide updated projections on inflation and growth, where we expect an upward nudge in inflation projections. The BoE is likely to repeat its message that a gradual, 25 bp hike in the repo rate per year policy path is in play. The BoE will likely caveat its forecasts with increased wariness about Brexit uncertainty and risks stemming from what appears to be a worsening in the global business environment (diminishing monetary liquidity, trade protectionism, geopolitical risks).

    [USD, CHF]
    EUR-CHF has recouped back above 1.1400, recovering rom the four-week printed at 1.1355 last Wednesday, which extended a descent from levels above 1.1500. Signs of flagging Eurozone growth and concerns about the Eurosceptic populist movement have seen the common currency fall out of favour. EUR-CHF has support at 1.1355-62, which encompasses the recent low and the prevailing situation of the 50-day moving average.

    [USD, CAD]
    USD-CAD has drifted back to the lower 1.3100s after yesterday edging out a seven-week high at 1.3170. Recent sharp oil price declines, which fell by over 15% in October, have been weighing on the Canadian dollar as markets factor in an erosion in Canada's terms of trade as the price of the economy's principal export earner wanes. WTI benchmark futures printed a fresh 11-week low yesterday, at $64.73. Canada's October employment is up tomorrow, where we project an expansion of 15.0k after the 63.3k surge in September. USD-CAD has support at 1.3089-92.

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