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By XE Market Analysis November 8, 2018 7:08 am
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    XE Market Analysis: North America - Nov 08, 2018

    The Dollar has more than recovered losses seen yesterday in the wake of the U.S. midterms election results. EUR-USD posted a two-day low at 1.1411. USD-JPY and yen crosses have been trading firmer so far today, concomitantly with rebounding global stock markets in accordance with the Japanese currency's usual inverse-correlative bias with equities. USD-JPY has posted a two-day high at 113.75, which is 6 pips short of the one-month peak seen on Tuesday. While S&P 500 futures have declined by 0.4% in overnight trading, Wall Street yesterday posted its biggest midterm election-day rally since 1982, with the S&P 500 closing over 2% for the better, while Asian stocks (ex-China) and European markets have also rallied. U.S. healthcare stocks were boosted by the success of the Democrats in taking control of the House, while there were some value buying after big declines in equity markets in October, especially of large retails into the Thanksgiving-Black Friday-Christmas season. Cable ebbed back to a two-day low of 1.3087, tracking EUR-USD's decline.

    [EUR, USD]
    EUR-USD posted a two-day low at 1.1411 as the Dollar rebounded from the losses seen yesterday, in the immediate wake of the midterm election results. A spilt congress spells policy gridlock, but this won't stop the economy, which is enjoying the tail winds of loose fiscal policy, positive global economic growth, and still relatively accommodative monetary policy. We remain bullish of the Dollar, anticipating continued outperformance of the U.S economy versus Europe and Japan, and further Fed tightening. EUR-USD resistance is at 1.1453-55.

    [USD, JPY]
    USD-JPY and yen crosses have been trading firmer so far today, concomitantly with rebounding global stock markets in accordance with the Japanese currency's usual inverse-correlative bias with equities. USD-JPY has posted a two-day high at 113.75, which is 6 pips short of the one-month peak seen on Tuesday. Wall Street yesterday posted its biggest midterm election-day rally since 1982, with the S&P 500 closing over 2% for the better, while Asian stocks (ex-China) and European markets have also rallied. The dynamic should be seen in context of coming after big losses in October, which, with the elections having largely met expectations, paved the way for a buy-on-fact reaction on Wall Street. In Japan today, data showed September core machinery orders tumbling 18.3% m/m, well off the expected 9.0% drop, though to little market impact as this is a notoriously volatile month-to-month data series. The Reuters November Tankan business survey fell to a heading reading for large manufacturers of 26, down from 28 in October, pointing to headwinds from U.S. trade protectionism, which is affecting Japan directly via U.S. tariffs on imports of Japanese steel and aluminium and indirectly via the impact of U.S. tariffs on Chinese goods, with China being Japan's second biggest export market. 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. More of the same looks likely. USD-JPY has support at 112.35-37.

    [GBP, USD]
    Cable ebbed back to a two-day low of 1.3087, tracking EUR-USD's Dollar-driven decline. This bookends a run gains, which has seen Cable rise in five of the previous six trading days, which yesterday left a three-week peak at 1.3175. Recent gains the Pound has reflected a lessening in sterling's Brexit premium, though there is a risk that hopes of the EU and UK are nearing to making an agreement on divorcing terms are being overegged as the seemingly intractable Irish border backstop issue still remains unresolved. Even if a deal is reached, there would remain significant uncertainty about whether it would be pass at parliamentary vote. Cable has support at 1.3041-43 and resistance at 1.3237-40.

    [USD, CHF]
    EUR-CHF has recouped back above 1.1400, recovering rom the five-week printed at 1.1355 in late October, which extended a descent from levels above 1.1500. The cross has support at 1.1405-10.

    [USD, CAD]
    USD-CAD has continued to ply a narrow range around 1.3100, above the 12-day low seen last Friday at 1.3049 and below the two-month high see last Wednesday at 1.3170. Fresh seven-month lows in oil prices, coupled with Friday's miss in Canada's October jobs report, which contrasted with the strong U.S. jobs report for the same month, should keep USD-CAD underpinned. USD-CAD has support at 1.3049-50, and resistance at 1.3137-40.

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