Home > XE Currency Blog > XE Market Analysis: North America - Nov 20, 2014

AD

XE Currency Blog

Topics6755 Posts6800
By XE Market Analysis November 20, 2014 6:35 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4679
    XE Market Analysis: North America - Nov 20, 2014

    USD-JPY rallied to a new seven-year high for the fifth consecutive day, reaching 118.97 in early London trade before ebbing back to the low 118s. EUR-JPY and other yen crosses saw a similar price action. EUR-USD, meanwhile, dove from 1.2575 to a low at 1.2504, subsequently consolidating above here. A disappointing November German PMI outcome drove the euro lower, subsequently backed up by sub-expectations Eurozone data, where the composite PMI fell to 51.4 from 52.1 in October. The PMI signals broad sluggishness in the Eurozone economy. AUD-USD settled near 0.8600 after earlier managing to carve out a two-week low at 0.8566, which was concomitant with an underperformance in Australian stocks today following weak China PMI data (the flash HSBC-Markit version fell to 50.0 in November from 50.4) and fresh weakness in commodity prices.

    [EUR, USD]
    EUR-USD settled to a consolidation after basing at 1.2504, leaving 1.2500 unchallenged, into which there is good bidding interest. The intraday high was left at 1.2575 before a disappointing November German PMI outcome drove the euro lower, subsequently backed up by sub-expectations Eurozone data, where the composite PMI fell to 51.4 from 52.1 in October. The data signals broad sluggishness in the Eurozone economy. With yesterday's FOMC minutes proving a non-event, markets will be now looking to a mini flood of U.S. data due out later, including CPI and weekly initial claims data, which we expect to be neutral-to-positive in terms of dollar impact. EUR-USD support is marked at 1.2500 and 1.2443-50. We look for an eventual move on the July 2012 low at 1.2042 on the back of diverging Eurozone and U.S. economic growth.

    [USD, JPY]
    USD-JPY rallied to a new seven-year high for the fifth consecutive day, reaching 118.97 in early London trade before ebbing back to the low 118s. EUR-JPY and other yen crosses saw a similar price action. There has been lots of talk in the interbank that USD-JPY is due a correction after recent outsized gains. PM Abe's rush for a new mandate for Abenomics (elections to be held Dec-14) has been driving the latest drop in the yen. The dollar's yield advantage over the yen is pushing back to recent highs near 190 bp at the 10-year bond maturity level. A solid 9.6% y/y rise in Japanese exports in October after a 6.9% increase in September, had little forex impact, and nor did news of a 5.3 earthquake in Japan, which came without a tsunami warning. 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]
    We remain bearish of sterling in the case against the dollar. We see that the 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 1.5687-1.5700, support at 1.5630 and 1.5600. We target 1.5500.

    [USD, CHF]
    EUR-CHF continues to ply a narrow path fractionally above the SNB's no-go limit of 1.2000. The market clearly has no appetite to test the resolve of the SNB, which had intervened decisively in 2011 and 2012 and has made clear that it will do all necessary to defend the cap now. Central bank 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. He has also repeated his and the SNB's aversion to the 'Save our Swiss Gold' referendum in Switzerland, due to be held on Nov-30 , arguing that a 'yes' vote would curtail the ability to defend the franc's cap, which is "currently our main policy tool." Polls suggest that the initiative will be rejected.

    [USD, CAD]
    USD-CAD has re-established itself 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 also 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