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By XE Market Analysis September 13, 2018 6:56 am
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    XE Market Analysis: North America - Sep 13, 2018

    The Dollar has traded mixed so far today, losing ground to the Australian Dollar, holding steady against the Pound while gaining on the Yen and Canadian Dollar. The overriding theme has been Yen weakness, which has been subject to a safe-haven premium unwind following the U.S. invitation to senior Chinese officials for fresh trade negotiations. USD-JPY lifted and then settled in the mid 111.0s, back to where the pair was 24 hours ago but up from the low seen during the New York PM session yesterday at 111.11. The biggest mover has been AUD-JPY, a cross that tends to correlate with pronounced swings in risk appetite in global markets, which gained nearly 0.5% in making a high at 80.20. EUR-USD settled around 1.1620, down from yesterday's one-week high of 1.1650 yesterday amid fresh pressure on Italian assets and as markets anticipated the ECB policy announcement (expected to leave policy guidance unchanged and affirm the schedule for phasing out of QE). The Pound traded with little directional bias into the BoE policy announcement (no changes expected in either policy or guidance), with Cable settled above 1.3000 after recent bouts of Brexit-related volatility, holding below recent highs at 1.3085-88. Moody's warned about a no-deal Brexit, which barely caused a ripple as the risks are well known and is generally seen as a scenario that is unlikely to been seen. USD-CAD lifted back above 1.3000, halting a run of three consecutive down days after Canada's Foreign Minister Freeland said officials needed more time to hold technical discussions on NAFTA before a "production conversation" could be had.

    [EUR, USD]
    EUR-USD has settled around 1.1620 after lifting to a one-week high of 1.1650 yesterday, which followed a bout of Dollar weakness on the news that the U.S. has invited senior Chinese officials to resume trade talks. The U.S. currency, like the Yen, has been a safe haven for markets. In the bigger view, we still view EUR-USD as remaining amid an overall bear trend, one that's been unfolding since mid April. Incoming U.S. data, like Friday's jobs report, should continue to firm-up expectations for a 25 bp Fed hike in December, which would follow an already fully-anticipated 25 bp hike in September. We would also expect the Dollar to appreciate in the scenario of sustained risk aversion in global markets. EUR-USD has resistance at 1.1650.

    [USD, JPY]
    USD-JPY has lifted amid broad Yen weakness as safe haven premiums unwind following news of U.S. invitation to senior Chinese officials to restart trade talks. This comes, in true Trumpian fashion, with the U.S. having loaded the gun with tariff hikes on a further $200 bln worth of Chinese imports and threatening to hike tariffs on the remaining £267 bln of imports. USD-JPY has lifted to back the mid 111.0s, while EUR-JPY, AUD-JPY and other Yen crosses have concurrently firmer up. Most stock markets in Asia have rallied. USD-JPY has resistance at 111.65, and support at 111.15-20 (which encompasses both the 20- and 50-day moving averages).

    [GBP, USD]
    The Pound has been trading with little directional bias, sitting at near net unchanged levels versus the Dollar and Euro as of the late London AM session while showing a modest loss to the underperforming Yen. Cable has settled above 1.3000 after recent bouts of Brexit-related volatility, holding below recent highs at 1.3085-88. Moody's warned about a no-deal Brexit scenario, which barely caused a ripple as the risks are well known and the UK parliament and EU member states will have a high priority in avoiding such an eventuality. We expect Sterling will be remaining in turbulence airs for some time yet. Cable has support at 1.2992-95 and resistance at 1.3085-88.

    [USD, CHF]
    EUR-CHF has ebbed back under 1.1300, continuing a moderate correction for a second day from Tuesday's two-week peak at 1.1343. The Franc has recently been intermittently in demand as a safe haven currency (particularly when the Turkish Lira and/or Italian assets have been under pressure), although a long Franc position has been made an expensive carry by the SNB given the -0.75% deposit rate, and the currency has been prone to quick unwinding of long positions. Strong Swiss GDP data for Q2 last week questioned the need for the SNB's aggressively-loose monetary policy, though with inflation remaining benign the central bank may not be ready to signal a policy shift given the risk for further episodes of Franc-supporting risk aversion stemming from emerging markets and/or escalation in trade protectionism. The SNB will be looking to time its tightening with ECB tightening.

    [USD, CAD]
    USD-CAD has lifted back above 1.3000, halting a run of three consecutive down days. Reports that Canada's Foreign Minister Freeland has postponed trade talks with the U.S., which had been due to resume today, have weighed on the Canadian Dollar. Freeland said officials needed more time to hold technical discussions before a "production conversation" could be had. USD-CAD has resistance at 1.3108-10. Any news of a handshake on NAFTA would likely spark a sharp drop in the pairing, although this looks to be off the table for now.

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