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By XE Market Analysis October 6, 2014 6:32 am
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    XE Market Analysis: North America - Oct 06, 2014

    The dollar gave back some of Friday's post-payrolls advance. Today's move picked up during the European AM after a thin Asian session where some centres were closed for public holidays. EUR-USD had reached a peak of 1.2571 as of the time writing after opening in Asia at 1.2412-13. The lack of euro selling after a weaker than expected German manufacturing orders release showed that the downside in EUR-USD had become exhausted for now, although the divergence between the Eurozone and U.S. growth paths should maintain the bigger-picture downside bias. USD-JPY ebbed below 109.50, leaving Friday's 109.90 peak and the Oct-1 six-year high at 110.09 unchallenged. The AUD was a relative outperformer, with AUD-USD recovering almost 100 pips from Friday's major-trend low at 0.8642. GBP, by contrast, was a relative underperformer holding near net unchanged against the dollar, below the 1.6000.

    [EUR, USD]
    EUR-USD ground higher as the market corrected some following Friday's post-payrolls rout. The speculative market has built up an extreme net short exposure, so short-squeeze rebound should not come as a surprise. The lack of euro selling on a weaker than expected German manufacturing orders release today shows that the downside in EUR-USD may be exhausted for now, although the divergence between the Eurozone and U.S. growth paths should maintain the bigger-picture downside bias. We see rebound potential to at least the 1.2995-1.2600 area, which would 'fill the gap' left by the post-jobs report dive on Friday. These levels mark resistance, too, ahead of 1.2615 and 1.2675 (Friday's high). The 1.2500 level is now a big support, though in the the longer view we are looking for an eventual move on the July 2012 low at 1.2042.

    [USD, JPY]
    USD-JPY ebbed below 109.50, leaving Friday's 109.90 peak and the Oct-1 six-year high at 110.09 unchallenged. While there is s scope for a squeeze on dollar longs, yield and growth differentials between the U.S. and Japan should keep the dollar underpinned against the yen, overall. We see scope for an eventual move to 115.00. Support is marked at 109.55 and 109.00. BoJ boss Kuroda said last Friday that the central bank is aiming to achieve the 2% inflation as "soon as possible," and that a weak currency won't be problematic so long as it reflects fundamentals.

    [GBP, USD]
    Cable's dive below, and close below, the 1.600 level on Friday is bearish technical development. The dollar-driven dive took out the Sep-10 low at 1.6052, and we see potential for a move on the November 2013 low at 1.5954. Aside from the U.S. fundamental story, the drop in the U.K. September composite PMI to a six-month low and remarks last week by BoE's Broadbent that the economy is "not ready" for a rate hike have helped confirm a sea-change in the U.K. economic narrative. We anticipate Cable to establish a lower trading range in the mid-to-upper 1.50s over the coming weeks as incoming U.K. data are likely to reflect the impact of economic stagnation across the Channel.

    [USD, CHF]
    EUR-CHF is back above 1.2100 after SNB's Jorden said last week that there are additional measures that the central bank could use to enforce the EUR-CHF limit peg at 1.2000. This has put the major-trend low of 1.2044 out of the picture for now. The SNB will find defending the 1.2000 cap a tougher proposition in the context of broad, fundamentally-driven euro weakness than it would be in the case of specific franc outperformance.

    [USD, CAD]
    USD-CAD should remain broadly underpinned, though there is a risk of a squeeze on dollar long positions in the nearer term. Friday's high was eight pips shy of the March major-trend peak at 1.1278, which we have been targeting. Support is marked at 1.1178-80 (which encompasses the Oct-2 high) and 1.1100. Major support is now some way off, at 1.0920-26.

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