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By XE Market Analysis September 14, 2018 6:59 am
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    XE Market Analysis: North America - Sep 14, 2018

    The Dollar extended declines that were sparked by yesterday's U.S. CPI data. EUR-USD has posted a new high for a third consecutive day, this time at 1.1721, which is the loftiest level seen since the late-August peak at 1.1733. Cable edged out a fresh six-week high of 1.3138, tracking EUR-USD higher amid broader Dollar weakness, with EUR-GBP holding in a near directionless stasis. USD-JPY and Yen crosses posted fresh highs in the early Tokyo session before settling. The new highs reflected weakness in the Japanese currency as the bullish global equity market theme continued, with spirits buoyed by the pending return of high-level trade talks between the U.S. and China (despite the latest bombastic remarks from President Trump). USD-JPY printed a fresh six-week high at 112.07 during early the Tokyo session before settling around the 111.80 mark. AUD-JPY lifted into 16-day high terrain above 88.50, while EUR-JPY logged six-week highs above 131.00. The latest Reuters poll on BoJ expectations found a consensus for the central bank to reduce stimulus, but not until 2020 or later. The Swedish krona has dropped sharply following the release of August inflation data out of Sweden, which showed headline CPI at 2.0%, below the median forecast for 2.1% y/y. This follows the Riksbank having last week pushed out its guidance for a first-of-cycle rate hike. EUR-SEK rallied over 0.5% in posting a one-week high at 10.5434. The NZD-SEK cross is showing a near 1% gain, with the NZ dollar having outperformed following a better-than-forecast manufacturing PMI survey in New Zealand, which came in at 52.0, up from 51.2 in the month prior.

    [EUR, USD]
    EUR-USD has posted a new high for a third consecutive day, this time at 1.1721, which is the loftiest level seen since the late-August peak at 1.1733, itself a six-week high. The pair yesterday closed above its 100-day moving average, and is set to make what would be the first weekly close above its 20-week moving average since April, needing to finish today above 1.1670. The price action has inspired talk of EUR-USD being at a trend inflection point, with the downtrend that's been in play since April now over. This makes some sense from the relative shift in Fed versus ECB policy trajectories, the Fed being some way into its tightening cycle while the ECB is slowly heading towards making a start at unwinding the substantial amount over stimulus in the Eurozone economy. Yesterday's sub-forecast U.S. CPI data, which followed more benign than anticipated PPI figures the day before, has taken the urgency out of the Fed's tightening course. Markets still expect the Fed to tighten at the FOMC meeting later this month, but the odds for a further hike as soon as December have eroded. We advise following the nascent uptrend in EUR-USD. The August high 1.1733 provides an upside waypoint, while support comes in at 1.1625-28. One caveat is that the pending U.S.-China trade talks fail and protectionism escalates further, a scenarios that would likely support the Dollar.

    [USD, JPY]
    USD-JPY and Yen crosses posted fresh highs in the early Tokyo session before settling. The new highs reflected weakness in the Japanese currency as the bullish global equity market theme continued, with spirits buoyed by the pending return of high-level trade talks between the U.S. and China (despite the latest bombastic remarks from President Trump). USD-JPY printed a fresh six-week high at 112.07 during early the Tokyo session before settling around the 111.80 mark. AUD-JPY lifted into 16-day high terrain above 88.50, while EUR-JPY logged six-week highs above 131.00. The latest Reuters poll on BoJ expectations found a consensus for the central bank to reduce stimulus, but not until 2020 or later, with core CPI seen at 0.9% in both the fiscal year to 2019 and to 2020. The scheduled sales tax hike in 2019 was cited as likely to dampen economic growth and limit the prospect for core CPI to reach the BoJ's 2% target.

    [GBP, USD]
    Cable edged out a fresh six-week high of 1.3138, tracking EUR-USD higher amid broader Dollar weakness, with EUR-GBP holding in a near directionless stasis. Sterling has seen some choppy price action of let, and the currency will likely remain in turbulent airs for some time yet as uncertainties, political intrigue, potential agreements of the final stretch of Brexit negotiation transpire. A former resistance zone at 1.3085-88 (formed by daily highs) now reverts as a support.

    [USD, CHF]
    EUR-CHF has settled near 1.1300, settled below 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 will 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 is set to post its biggest down week since June, having retreated from above 1.3150 to sub-1.2900 levels, though the benign August CPI reading out of the U.S. and a sharp drop in oil prices have given the pairing an underpinning. NAFTA talks remain a source of frustration, with Foreign Minister Freeland saying on Wednesday that officials needed more time to hold technical discussions before a "production conversation" could be had. USD-CAD has resistance at 1.3108-10.

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