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By XE Market Analysis November 21, 2017 11:59 am
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    XE Market Analysis: North America - Nov 21, 2017

    The main event today was market reactions to news on Sunday that talks to form a new coalition government in Germany had collapsed. The euro initially dove before rebounding, tracking German stock markets higher as markets fine tuned their response to the shifting political landscape in Germany following the collapse of coalition talks on Sunday. EUD-USD stormed back to near net unchanged levels around 1.1780 after diving by over 0.5% in making a low at 1.1722 during early trade in Asia as markets initially reacted to the news. USD-JPY dropped to a new low for a fifth straight session, hitting a one-month low at 111.88 in early Asia-Pacific trading..

    [EUR, USD]
    EUR-USD tracked German stock markets higher as markets fine tune their response to shifting political landscape in Germany following the collapse of coalition talks on Sunday, which for one thing has dashed hopes for pending fiscal stimulus. EUD-USD stormed back to near net unchanged levels around 1.1780 after diving by over 0.5% in making a low at 1.1722 during early trade in Asia as markets initially reacted to the news. The general idea is that most German politicians will try to avoid the calling for new elections, which would entail the possibility of the extreme right-wing AfD increasing their 13% of the vote they won at the September election. This would likely involve the SPD party reversing out of its pre-election pledge to not enter into a repeat alliance with Merkel's CDU, so we'll have to wait and see. EUR-USD trading is likely to be cautious and potentially volatile in the period ahead.

    [USD, JPY]
    USD-JPY dropped to a new low for a fifth straight session, hitting a one-month low at 111.88 in early Asia-Pacific trading. The low was seen amid a spate of risk-off as markets digested the collapse of coalition talks in Germany.Japanese PM Abe also remarked that "excessive" yen strength has been corrected. USD-JPY subsequently settled around 112.00. The price action affirms an evolving correction phase following a two-month rally from the early September low at 107.31, which capped out at 114.73 in early November. We anticipate further declines. Resistance is at 112.34-45, ahead of 112.75, which was a former support level. Trend support now comes in at 112.64-65.

    [GBP, USD]
    The pound has opened trading this week on a firmer footing. Cable has lifted to near 1.3250, and the pound has forayed into one-week low terrain versus the euro while reversing a portion of recent losses seen against the yen. A fundamental underpinning for the pound stems from last week, when BoE governor Carney noted that more rate hikes will be seen if the economy develops along expected lines, while October retail sales beat forecasts. Focus remains on Brexit, with time ticking on the next deadline for the UK and EU to agree on divorcing terms. There remains little sign that an accord will be reached, not just on the final financial settlement but also the Northern Ireland border, which is starting to look like a major sticking point. Talk of a hard Brexit scenario has become ever present. We continue to advise caution with regard to the pound. Cable has been continuing a six-week oscillation of the 1.3200 level. A series of daily lows that were seen in October between 1.3027 and 1.3039, mark a key support zone.

    [USD, CHF]
    EUR-CHF has rebounded above 1.1650 after printing a low of 1.1591 yesterday, which was seen as markets initially reacted to news of the failed coalition effort in Germany. The cross posted a 34-month high at 1.1723 on Friday. With political uncertainties now prevailing in Germany, we expect EUR-CHF to trend sideways, with risks tilted to the downside for now. Key support is at 1.1542-45.

    [USD, CAD]
    USD-CAD has nudged above 1.2800, drawing in on the 1.2824 three-week high that was seen last week. BoC policymaker guidance over the last month that the central bank is in now rush to continue with its gradual tightening cycle has taken the wind out of the sails of the Canadian dollar. We project the next BoC rate hike to be in March, while the Fed is on track to tighten next month. Resistance is at 1.2824-25, and support is at 1.2723-25.

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