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By XE Market Analysis November 29, 2018 7:09 am
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    XE Market Analysis: North America - Nov 29, 2018

    The Dollar lifted out of fresh lows, while the Yen outperformed as Europe stock markets pared opening gains, S&P 500 futures sank and after the main Chinese stock indexes closed with 1%-plus losses for a second day. EUR-USD fell back to 1.1350 after printing a four-session high at 1.1397 as the impact of Fed Powell's dovish turn yesterday faded. A fresh wobble in markets for Italian assets provided a reminder of the euro's reasons-to-be-bearish list, while softer than expected German state inflation data, in preliminary estimates for November, were also in the mix. USD-JPY fell to a three-day low at 113.21, which partly reflected Dollar weakness but also Yen outperformance, as most Yen crosses also declined. Sterling came back under Brexit-related pressure, declining by more than 0.5% against both the Dollar and Euro. Cable printed a low of 1.2756, reversing most of the rebound gain the pound saw yesterday. A warning from the BoE of significant negative impact on the economy in the event of a no-deal Brexit, which followed Chancellor Hammond's remarks yesterday that all versions of Brexit will leave the economy worse off, have been weighing on the UK currency. It is also still looking likely that the Brexit deal will be voted down at the December 11 parliamentary vote.

    [EUR, USD]
    EUR-USD has settled lower after printing a four-session high at 1.1397. Fed Powell's dovish turn has been weighing on the dollar, though a fresh pressure on Italian yields have provided a reminder on the euro's reasons-to-be-bearish list. While EUR-USD has been amid a big-picture bear trend that's been in play since April, downside momentum has been waning in recent weeks as markets start to factor in pause in the Fed's tightening cycle from next spring. On the flipside, signs of flagging growth momentum in the Eurozone (such as last Friday's release of flash estimates of the November PMI surveys) and a back-and-forth process between Brussels and Rome over the budget planning of Italy's populist government remain negatives for the Euro, with Brexit also presenting risks. EUR-USD has support at 1.1358-60.

    [USD, JPY]
    USD-JPY fell to a three-day low at 113.21 as the Yen outperformed amid a generally softer Dollar environment. The U.S. currency weakened after Fed's Powell affirmed a dovish turn at the central bank, which drove the 10-year U.S. T-note yield fell to a two-month low toward 3%, while the Yen picked up safe-haven demand as bullish stock market sentiment, which saw the main U.S. indexes posted 2%-plus gains yesterday, faded in Asia. Japan's Nikkei 225 closed near intraday lows but with a 0.4% gain, while the main Chinese indexes have lost more than 1% for a second consecutive day. Mainland investors have reportedly been dominant sellers of Chinese shares in recent sessions, with pessimism remaining about the scope for Trump and Xi to improve trade relations at their meeting on Friday. BoJ member Masai, meanwhile, said that Japan's yield curve won't steepen as much as in the past due to the relatively lower growth potential of the Japanese economy. USD-JPY's fundamentals (yield differentials and the associated contrast between Fed and BoJ policy paths) remain supportive, though periodic episodes of risk aversion have been an intermittent offsetting bearish force. USD-JPY has resistance at 114.00, and support at 113.34-35.

    [GBP, USD]
    Sterling came back under Brexit-related pressure. Cable printed a low of 1.2756, reversing most of the rebound gain the pound saw yesterday. The BoE's warning of a significant negative impact on the economy in the event of a no-deal Brexit, along with Chancellor Hammond's remarks that all versions of Brexit will leave the economy worse off, have been weighing on the currency. This comes with Brexit remaining clouded in uncertainty, despite the EU and UK government having shaken hands on a deal. What does look clear, at least at the moment, is that that deal will be voted down at the December 11 parliamentary vote, with the Labour opposition, Northern Ireland's DUP party (the kingmakers of the Tory-led minority government), and numbers of Tory party members (mostly from the Eurosceptic Brexiteer cabal) set to vote against the government. Cable has support at 1.2696-1.2700, which encompasses the four-month lows seen in late October.

    [USD, CHF]
    EUR-CHF has recovered the 1.1300 handle after pegging a two-month low at 1.1261 yesterday. The recovery has tracked the rebound in EUR-USD. EUR-CHF has support at 1.1277-80, and resistance at 1.1325.

    [USD, CAD]
    USD-CAD has corrected back to around the 1.3250 mark after yesterday printing a five-month high at 1.3359. The driver has been the drop in U.S. Treasury yields after Fed chair Powell affirmed a dovish shift in the policy outlook. This drove the U.S. Dollar broadly lower, offsetting, for now the impact of the 33%-plus decline in oil prices since early October. Significant and sustained declines in oil prices is a negative for the Canadian economy as it dents its terms of trade. The Canadian data calendar brings Q3 current account figures today, and the Q3 GDP report tomorrow. We expect growth to slow 2.0% q/q growth, down from 2.9% in Q2. USD-CAD has support at 1.3215-17.

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