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By XE Market Analysis November 19, 2014 6:33 am
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    XE Market Analysis: North America - Nov 19, 2014

    The Aussie and yen underperformed, the former amid commodity price declines and the latter following the BoJ policy statement and dovish tone of Kuroda's post-meeting press conference. Both currencies lost ground to the euro and dollar, among others. Amid this backdrop, EUR-USD traded higher amid general euro strength, with EUR-JPY extending further into six-year high territory above 147.50, while EUR-USD breached yesterday's peak in making a high of 1.2547, though upside progress subsequently stalled. EUR-CHF remained heavy, holding the line little more than 10 pips above the SNB's 'no-go' marker at 1.2000. A Bloomberg survey found a consensus expectation for the SNB to maintain the franc's cap until 2017, which is when the ECB is expected to start exiting from ultra-accommodative policies.

    [EUR, USD]
    EUR-USD traded higher amid general euro strength, which has been a descriptive phrase that's become unfamiliar in recent months. EUR-JPY extended further into six-year high territory, while EUR-USD breached yesterday's peak in making a high of 1.2547, bringing Monday's three-week peak at 1.2577 into scope. The euro seems to have established a bid following a much stronger than expected German ZEW investor confidence yesterday, while ECB boss Draghi indicated earlier in the week that no additional easing is likely as the impact of existing measures has yet to take effect (though his colleague Linde has just repeated the ECB will do more if needed). Today's FOMC minutes will be a big focus for markets, and could return favour to the dollar, though we think the minutes will in fact take a less hawkish tone than the statement issued after the meeting itself.. EUR-USD resistance is at 1.2577-80, support at 1.2510-12, 1.2500 and 1.2443-50.

    [USD, JPY]
    Another day, another seven-year high in USD-JPY which rallied to new peaks above 117.60 after punching through yesterday's 117.06 peak. The BoJ maintained its ultra easing posture at the conclusion of its policy meeting today, as widely expected following the surprise stimulus in October -- but the Board voted 8-1 in favour of the decision this time compared to the 5-4 tally in October. The minutes also indicated potential for prolonged low-inflation in Europe is a risk, while Governor Kuroda said "there is a chance core CPI will fall below one percent." The yen also posted a new six-year low against the euro. Japanese PM Abe announced on Wednesday a postponement in a scheduled sales tax hike while calling for a snap election. 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 -- which is yen bearish, of course -- while his ratings are relatively high and before tackling unpopular policies next year. We expect divergent economic and central bank policy paths between the U.S. and Japan will remain broadly supportive of USD-JPY, anticipating move on 120.00.

    [GBP, USD]
    Sterling rallied on the BoE minutes to the Nov 5th-6th MPC meeting, which revealed an unchanged 7-2 vote to leave the repo at 0.5%, with members McCafferty and Weale continuing their dissent in favour of a 25 bp hike for a fourth consecutive month. The minutes also noted that there was "a material spread of views on the balance of risks to the outlook" among the seven voting for unchanged policy, which seems surprising following last week's publication of the latest Quarterly Inflation Report, which by virtue of GDP and CPI forecast downgrades had sent a dovish message. EUR-GBP as lost nearly 40 pips and has dropped back under 0.8000, while Cable has accumulated 75 pip gain in making a high so far of 1.5570. The market had been running a net short exposure to the pound ahead of the minutes, and there is likely potential for more position-squaring gains. Resistance is at 1.5679-80 and 1.5735-40. Bigger picture we anticipate there is more to come in sterling's bear trend against the dollar 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. We target 1.5500.

    [USD, CHF]
    EUR-CHF has continued its hyper slow-motion grind lower after clocking a fresh major-trend low at 1.2009 on Monday (which was matched today), the fourteenth 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 the SNB's view 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 lifted back above the 1.13 handle. We continue to expect a challenge on the major-trend high at 1.1467 on the back of U.S. dollar strength. The likelihood for continued soft oil prices is relative downer for the Canadian dollar, too. Resistance is marked at 1.1400 and 1.1480-1.1500, support is at 1.1260-65-1.1250.

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