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By XE Market Analysis October 7, 2014 7:34 am
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    XE Market Analysis: North America - Oct 07, 2014

    The euro came under pressure again, which drove EUR-USD back below 1.2600 after an early European AM flurry stalled at 1.2664, short of yesterday's peak at 1.2675. A much weaker than expected 4% m/m decline in German industrial production elicited euro bears back into the open. The failure of EUR-USD to test 1.2695-1.2600, which would have 'filled the gap' left by the post-jobs report dive on Friday, was also a bearish signal for technically minded market participants. USD-JPY re-established a footing above 108.50, and the 20-day moving average at 108.51, after dipping to a 108.38 low during the Tokyo session. Last Friday's low at 108.35 and last Thursday's low at 108.00 are support levels. The BoJ left policy unchanged by a vote of 8:1 today, as was widely anticipated. Cable followed EUR-USD lower, dropping back to the 1.6050 area after earlier firming to 1.6117.

    [EUR, USD]
    The euro came under pressure again, which drove EUR-USD back below 1.2600 after an early European AM flurry stalled at 1.2664, short of yesterday's peak at 1.2675. A much weaker than expected 4% m/m decline in German industrial production elicited euro bears back into the open. The failure of EUR-USD to test 1.2695-1.2600, which would have 'filled the gap' left by the post-jobs report dive on Friday, was also a bearish signal for technically minded market participants. These levels mark resistance, ahead of 1.2615 and 1.2675 (Friday's high). On the downside, 1.2500 (last Friday's low) is now a big support level, though in the longer view we are looking for an eventual move on the July 2012 low at 1.2042.

    [USD, JPY]
    USD-JPY re-established a footing above 108.50, and the 20-day moving average at 108.51, after dipping to a 108.38 low during the Tokyo session. Last Friday's low at 108.35 and last Thursday's low at 108.00 are support levels. The BoJ left policy unchanged by a vote of 8:1 today, as was widely anticipated, while the statement said that the economy is recovering moderately. In the bigger picture, yield and growth differentials between the U.S. and Japan should keep the dollar underpinned against the yen. We see scope for an eventual move to 115.00. 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 followed EUR-USD lower, dropping back to the 1.6050 area after earlier firming to 1.6117. This fits the fundamental picture as last week's U.K. September composite PMI fell a six-month low, and we expect incoming data to show the impact of the stagnating Eurozone economy that should support BoE MPC member Broadbent's remarks of last week, that the economy is "not ready" for a rate hike. Resistance is marked at 1.6159 (last Friday's high) and 1.6240 (20-day moving average). Supports are at 1.6025 and 1.6000.

    [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 corrected to the low 1.11s amid a general squeeze on dollar long positions. 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 1.1100, while major support is now some way off, at 1.0920-26.

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