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By XE Market Analysis November 14, 2014 6:26 am
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    XE Market Analysis: North America - Nov 14, 2014

    The dollar was mixed, posting fresh trend highs against the underperforming yen and sterling, while seeing some losses against the euro, which found an underpinning on forecast-beating Eurozone GDP data. Flash Q3 GDP Eurozone came in stronger than expected at 0.2% q/q, with Q2 revised up to 0.1% from 0.0%, helping EUR-USD lift to the mid-to-upper 1.24s. USD-JPY punched out a fresh six-year peak at 116.40 as the dollar's yield advantage pushed toward recent highs at 190 bp at the 10-year level between in the U.S. T-note and JGB. Sterling dived to fresh lows, with Cable making a new 13-month low at 1.5654 and EUR-GBP reaching new three-week highs above 0.7950. The move extended the decline that was set in motion by the release of the November BoE Quarterly Inflation Report on Wednesday, which trimmed growth and inflation forecasts. The market is also looking next week's U.K. October CPI release, which comes with downside risk. The AUD managed to recover above 0.8700 after dipping on news that Glencore, the world's biggest thermal coal miner, is planning to close a number of mines in Australia in December due to global oversupply.

    [EUR, USD]
    EUR-USD found support on encouraging Eurozone data, with Q3 GDP stronger than expected at 0.2% q/q, with Q2 revised up to 0.1% from 0.0%. Among the national figures, a better than expected 0.3% q/q rise was seen in French Q3 GDP, while German growth came in at +0.1%, as expected but still of some relief as a negative print -- and thereby technical recession -- was avoided. EUR-USD has seen an intraday high at 1.2470, up from the low of 1.2426 that was seen in Asia. The pair is continuing to oscillate within the approximate 1.2400-1.2500 range that's been persisting over the last week. We remain bearish 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. The ECB will also start buying ABS next week, and looks headed to widen the scope of asset purchases to include corporate bonds. Initial EUR-USD resistance is marked at 1.2500-1.2509, support at 1.2394-1.2400.

    [USD, JPY]
    USD-JPY punched out a fresh six-year peak at 116.40 as the dollar's yield advantage pushed back toward recent highs at 190 bp at the 10-year level between in the U.S. T-note and JGB. There continues to be a flood of Japanese policymaker speak, which is generally sending the message the QQE isn't risking hyper-inflation down the track, that Japanese PM Ane is likely to announced a delay in the second scheduled hike in the sales tax, which may be accompanied by fresh stimulus and, possibly, a snap election in December. 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]
    Sterling dived to fresh lows, with Cable making a new 13-month low at 1.5654 and EUR-GBP reaching new three-week highs above 0.7950. This extends the decline that was set in motion by the release of the November BoE Quarterly Inflation Report on Wednesday, which trimmed both GDP and inflation forecasts and noted that CPI is likely to fall below 1% over the next six months. BoE's Broadbent subsequently said that disinflationary trends will persist for a while. We anticipate more of the same as we see U.K.'s recovery pace will continue to be eroded by economic stagnation across the Channel and slowing in some key emerging economies. Resistance is at 1.5694-5700, support at 1.5650. We anticipate a move on 1.5500.

    [USD, CHF]
    EUR-CHF clocked a fresh 26-month low at 1.2015 today -- the twelfth consecutive day the franc has edged out a fresh high against the euro. The threat of SNB intervention is high given the nearing proximity of the franc's cap at 1.2000. The SNB's resolve in any defence can be expected to be resolute. President Jordan said in a press interview this week that the cap will remain in place for the "foreseeable" future as it is "essential" for preventing deflation. Jordan 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 the cap 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 as the SNB have argued it "would severely constrain the SNB's room for manoeuvre in a future crisis."

    [USD, CAD]
    USD-CAD recovered to the mid-to-upper 1.13s, bringing the major-trend high at 1.1467 back into scope. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1298-1.1300. We 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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