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By XE Market Analysis October 9, 2018 7:12 am
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    XE Market Analysis: North America - Oct 09, 2018

    The Dollar has lifted across-the-board, concomitantly with the 10-year U.S. Treasury yield hitting fresh seven-year highs, which contributed to a firmly risk-off sentiment in global markets. The U.S. currency also benefitted by EUR-USD selling amid a renewed spike in Italian yields as markets increasingly lose confidence in the credibility of the coalition government's budget plans, while sub-forecast retail sales data out of the UK also kept Cable under pressure. EUR-USD to a fresh seven-week low of 1.1440 and EUR-JPY and EUR-GBP into one- and three-and-a-half-month low territory, respectively. EUR-CHF has also corrected recent gains. USD-JPY has been relatively stable, settling to the north of 113.00, above the eight-session low printed yesterday at 112.82. Cable pegged a low at 1.3050, leaving yesterday's low at 1.3028 unchallenged so far. Stock markets were mostly lower. Europe's Stoxx 500 was showing a 0.4% decline as of the early PM session, while the MSCI Asia-Pacific (ex Japan) index hit a 17-month low before lifting. Chinese markets closed with fractional gains after sharp losses were seen on Monday (with markets there reopening after a one-week holiday), which saw the Shanghai Composite close with a 3.7% loss. The IMF cut its growth forecasts for both this year and next, including downgrades of the outlooks for the U.S., Europe and China. The PBoC set the USD-CNY reference rate at 6.9019.

    [EUR, USD]
    The Euro has came back under pressure, driving EUR-USD to a fresh seven-week low of 1.1440 and EUR-JPY and EUR-GBP into one- and three-and-a-half-month low territory, respectively. EUR-CHF has also corrected recent gains. The reason: Italy. Markets are increasingly losing confidence in the credibility of the coalition government's budget plans, and the European Commission yesterday was sharply critical of the latest proposals and France's Villeroy today joined the chorus of European officials warning against the unstable combination of rising debt and low growth. Italy's MIB has tanked to 18-month lows, while the 10-year BTP yield has surged above 3.70% for the first time in over four years. We continue to favour EUR-USD's downside. Aside from the Italy situation, the strong fundamental credentials of the Dollar is itself a reason to be bearish, with the Fed on course to hike rates again in December, and tighten further in 2019 EUR-USD has support at 114.60.

    [USD, JPY]
    USD-JPY has settled around 113.00, above the eight-session low printed yesterday at 112.82. Ranges have been narrow in currency markets, despite risk appetite remaining on firmly to the negative side of the dial. The MSCI Asia-Pacific (ex Japan) index hit a 17-month low. The IMF cut its growth forecasts for both this year and next, including downgrades of the outlooks for the U.S., Europe and China. The PBoC set the USD-CNY reference rate at 6.9019. Often times, such a backdrop would see the Yen appreciate, though the rise in U.S. over Japan yield differential appears to be providing offsetting support for USD-JPY. The 10-year U.S. Treasury yield has today lifted to a fresh seven-year highs near 3.30%.

    [GBP, USD]
    Sterling has lost some ground against both the dollar and euro. Cable pegged a low at 1.3050, though yesterday's low at 1.3028 has remained unchallenged so far. The comes after the release of the September BRC retail sales, which disappointed at -0.2% y/y in the same store measure, with the report highlighting that Brexit uncertainty has been crimping the hitherto robust consumer sector. This follows two surveys published yesterday (one from the BCC business lobby group and one from Deloitte) finding anxiety at businesses about the economic outlook has reached the highest level since the Brexit vote in June 2016, and the proportion of firms experiencing difficulties in hiring staff to be at a record high. The Brexit situation remains clouded in uncertainty. Even if Prime Minister May's government reaches a deal with the EU, it will be no means have guaranteed passage given the marked differences in the factions of the fragile ruling Tory-DUP governing alliance, and between the parties. We favour the downside with regard Cable, especially given the prevailing strong fundamentals of the U.S. economy. Support is at 1.3000-03.

    [USD, CHF]
    EUR-CHF has retreated toward the 1.1400 level after posting a six-week high at 1.1450 on Friday. The gain the cross saw last week reflected a pricing-out of safe haven positioning after the Italy's coalition government produced a EU-appeasing budget, although concerns remain. The cross has support at 1.1400-03.

    [USD, CAD]
    USD-CAD has retreated to the mid 1.2900s after posting an eight-session high at 1.3010 yesterday, which extended the gain seen in the wake of Friday's dual releases of September employment reports out of the U.S. and Canada, which on balance was bullish for the pairing (taking into account the strong back revisions to the U.S. report, which offset an underwhelming headline). USD-CAD has resistance at 1.2893-95 and 1.3020-25.

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