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By XE Market Analysis November 18, 2014 7:02 am
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    XE Market Analysis: North America - Nov 18, 2014

    The dollar was mixed, holding strong versus the yen while trading lower against the euro following strong data out of the Eurozone. USD-JPY logged a new seven-year peak at 117.06 on EBS, which by our reckoning surpassed yesterday's high by one pip, after Japanese PM Abe announced a postponement in a scheduled sales tax hike while calling for a snap election. The pair subsequently saw some whippy price which left an intraday low at 116.40. EUR-USD, meanwhile rallied from sub-1.25 levels to an intraday high at 1.2540, which reverses more than three quarters of yesterday's decline. The euro was bid following a much stronger than expected German ZEW investor confidence, which came in at 11.5 in the November from -3.6 in the previous month. AUD-USD logged a two-day low of 0.8682. The RBA minutes to the November meeting repeated that a period of rate stability is likely the most prudent course, and that the currency remains overvalued despite recent depreciation, remaining above "most estimates of its fundamental values." EUR-CHF continued to trade heavily, holding about 10-15 ticks above the SNB's 1.2000 franc cap.

    [EUR, USD]
    EUR-USD rallied from sub-1.25 levels to an intraday high at 1.2540, which reverses more than three quarters of yesterday's decline. The euro was bid following a much stronger than expected German ZEW investor confidence, which came in at 11.5 in the November from -3.6 in the previous month. We don't anticipate gains to sustain in EUR-USD into tomorrow's FOMC minutes, which will be a big focus for markets, and may return favour to the dollar should we see a hawkish-leaning tone. EUR-USD resistance is at 1.2555 and 1.2577-80, support at 1.2443-50.

    [USD, JPY]
    USD-JPY logged a new seven-year peak at 117.06 on EBS, which by our reckoning surpassed yesterday's high by one pip, after Japanese PM Abe announced a postponement in a scheduled sales tax hike while calling for a snap election. The pair subsequently saw some whippy price which left an intraday low at 116.40. The planned rise in the nation's sales tax to 10% from 8% (having been lifted from 5% in April) will be delayed until April 2017. Parliament will be dissolved on Nov-2, even though an election is not necessary until 2016. Abe is looking to lock in a fresh mandate for his "Abenomics" strategy while his ratings are relatively high and before tackling unpopular policies next year, according to Reuters. We expect divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY, and anticipate an eventual move on 120.00.

    [GBP, USD]
    Sterling rose following the release of U.K. inflation data, with the CPI headline matching both our survey and the Reuters survey medians for a 1.3% y/y outcome. Ourselves and many others had anticipated an unchanged 1.2% y/y reading, however, which would have matched September's five-year low. Cable peaked at 1.5670, though EUR-GBP recovered the 0.80 handle, aided by concurrent bid in EUR-USD. Resistance in Cable is 1.5680, 1.5700 and 1.5735-40, support at 1.5593-1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF remains heavy after clocking a fresh 26-month low at 1.2010 on Monday, which was 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 implemented 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 this week 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 has 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, however, 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.

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