Home > XE Currency Blog > XE Market Analysis: North America - Nov 17, 2014

AD

XE Currency Blog

Topics6681 Posts6726
By XE Market Analysis November 17, 2014 7:00 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4606
    XE Market Analysis: North America - Nov 17, 2014

    The new week opened with a bout of volatility in forex markets with the dollar more than recovering from Asia-session weakness in European trade against most currencies. USD-JPY hit a new trend peak at 117.05, dove to 115.45 and then settled at near net-unchanged levels around 116.20. The volatility was sparked by a shock Japanese GDP contraction. EUR-CHF remained in focus as it edged out a fresh low of 1.2010. SNB President Jordan repeated in a press interview that a "yes" vote would curtail the central bank's ability to defend the franc's cap, which is "currently our main policy tool." Cable drifted back to the low 1.56s after making a high at 1.5736 in Asia. BoE's Haldane said he is watching risks of low inflation "like a dove."

    [EUR, USD]
    EUR-USD more than gave back Asia-session gains to 1.2577, and was trading just under 1.2500 as of the early European PM session. EUR-JPY traded in a similar pattern, though at the same time USD-JPY recovered back above 116.00 from the mid-115s, illustrating overall dollar outperformance. 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. The ECB will also start buying ABS this week, and looks headed to widen the scope of asset purchases to include corporate bonds. Initial EUR-USD resistance is marked at 1.2555 and 1.2577-80, support at 1.2480, and 1.2394-1.2400.

    [USD, JPY]
    The JPY rebounded from fresh trend lows in volatile trade in the wake of a shocking Japanese GDP outcome, which unexpectedly dropped by 1.6% in the preliminary reading for Q3 (saar), well off the 2.2% median forecast and after diving 7.3% in Q2. USD-JPY initially spiked to a new seven-year peak at 117.05 following the data release before turning tail and dropping some 150 pips to a low of 105.45, and then recouping the 116 handle in London trade. The drop came as Japanese stocks dove sharply, which fits the usual inverse correlation that the yen sees during periods of sharp swings in risk appetite. Japan Economic Minister Amari admitted that the impact of the first sales tax hike was "bigger than expected," and that, therefore, the cabinet will carefully scrutinize a second hike. We expect 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 drifted back to the low 1.56s after making a high at 1.5736 in Asia. BoE's Haldane said he is watching risks of low inflation "like a dove." This brought Friday's 13-month low at 1.5593 back into scope, which was seen as the pound extended the decline set in motion by last Wednesday's release of the November BoE Quarterly Inflation Report, which trimmed both GDP and inflation forecasts while noting 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 bear trend 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 1.5735-40, support at 1.5593-1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF clocked a fresh 26-month low at 1.2010 -- the thirteenth 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 last 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 "Save our Swiss Gold" referendum in Switzerland on Nov-30 is seen as potentially bearish for EUR-CHF. Jordan repeated in a press interview that a "yes" vote would curtail the central bank's ability to defend the franc's cap, which is "currently our main policy tool."

    [USD, CAD]
    USD-CAD dipped to two-week lows under 1.1300 after failing to muster a challenge on the major-trend high at 1.1467. We still expect further greenback gains as the risk of continued soft oil prices will be a relative downer for the Canadian dollar. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1260-65-1.1250.

    Paste link in email or IM