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By XE Market Analysis November 12, 2014 7:23 am
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    XE Market Analysis: North America - Nov 12, 2014

    The dollar has been mixed, gaining against an underperforming sterling after the BoE trimmed GDP and CPI projections, holding net steady in the mid-to-upper 1.24s versus the euro, and ebbing to the low 115s against the yen following a correction from Tuesday's six-year peak at 116.10. Cable tumbled nearly 100 pips in reaching 1.5847 on the release of the November BoE Quarterly Inflation Report, which trimmed both GDP and inflation forecasts and noted that CPI will likely fall below 1% within six months. The yen was supported in Tokyo trade by a report in Japan's Sankei newspaper that PM Abe will delay the tax hike by a year-and-a-half to April 2017. Sankei , citing government sources, also said that Able may call a snap election for December. Elsewhere, EUR-CHF remained heavy after making a 26-month low at 1.2021 yesterday. SNB President Jordan said in a press interview today that the 1.2000 cap will remain in place for the "foreseeable" future as it is "essential" for preventing deflation.

    [EUR, USD]
    EUR-USD has seen some choppy price action in the mid-1.24s after capping out just shy of 1.2500 on two separate rallies over the last day. The euro was unperturbed was remarks from ECB's Mersch, who said on Tuesday that the central bank will be ready to buy ABS next week. There is also growing conviction that the central bank will at least have to widen the scope of asset purchases to include corporate bonds if it wants to expand its balance sheet towards the EUR 3 trillion mark. We remain bearish in the bigger picture on the basis of our anticipation for higher growth in the U.S. relative to the Eurozone over the next six months, looking for an eventual move on the Oct 2012 low at 1.2040. Nearer-term trend resistance is marked at 1.2399-1.2400.

    [USD, JPY]
    USD-JPY dipped to a low of 115.09 before recouping to the mid-115s, consolidating after extending to a fresh 6-year peak of 116.10 yesterday. Yesterday's low at 115.02 was lest unchallenged. Japan's Sankei newspaper reported that PM Abe will delay the tax hike by a year-and-a-half to April 2017, and call an snap election for December as the delay would exceed the current Lower House term (aside from other politically strategic considerations). Our long-standing USD-JPY target at 115.00 was finally met last week, though we still think divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY, and expect an eventual move on 120.00.

    [GBP, USD]
    Cable tumbled on the release of the November BoE Quarterly Inflation Report, which trimmed both GDP and inflation forecasts, noting that CPI is likely to fall below 1% within six months. This saw sterling more than give back gains seen on a generally good employment report, with the October claimant count dipping by a more-than-expected 20.4k. Cable lost nearly 100 pips in making a low of 1.5850, which swung last Friday's 13-month low at 1.5790 back into range. We anticipate more of the same as we see U.K.'s recovery pace will continue to ebb over the coming quarter due to the impact of economic stagnation across the Channel and de-acceleration in some key emerging markets. This will likely contrast to the situation Stateside. Resistance is at 1.5945-50, 1.6000 and 1.6022-28 (former highs), support at 1.5887-90 and 1.5824-25.

    [USD, CHF]
    EUR-CHF has dropped back to sub-1.2030 levels, so far holding above yesterday's 26-month low at 1.2021. The weight of a EUR-GBP sell order reportedly drove EUR-CHF lower, which illustrates the headwinds the SNB may be obliged to fight against in defending the franc's cap at 1.2000. The SNB's resolve can be expected to be resolute. President Jordan said in a press interview today that the 1.2000 cap will remain in place for the "foreseeable" future as it is "essential" for preventing deflation. Jordan has also said, last month, that negative interest rates could be deployed as an extra defence if need be. The franc hasn't seen the south side of 1.2000 since it was implemented in Sept 2011. Euro weakness and bouts of risk aversion have been weighing on EUR-CHF recently, while the approach of the so-call "gold initiative" referendum in Switzerland on Nov-30 is seen as potentially bearish for EUR-CHF. A 'yes' outcome would require the SNB to raise the percentage of gold reserves to 20% of the total from 8%, which SNB's Danthine has argued "would severely constrain the SNB's room for manoeuvre in a future crisis." Jordan also repeated today SNB's case against it.

    [USD, CAD]
    USD-CAD corrected to the 1.13s after making a new major-trend high at 1.1467 last Wednesday. Resistance is marked at 1.1370-71 and 1.1480-1.1500, support is at 1.1300. We still expect further greenback gains as the risk of continued soft oil prices will be a relative downer for the Canadian dollar.

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