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By XE Market Analysis February 10, 2014 3:22 am
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    XE Market Analysis: Europe - Feb 10, 2014

    It's been an uneventful start to the week in trading among the main currencies. The USD posted narrow ranges against most other currencies. Stock markets in Asia extended last week's rebound on the coattails of Wall Street's rise following the U.S. jobs report on Friday. This backdrop helped the yen decline, though losses were modest. USD-JPY logged a peak of 102.65 before settling around 102.40, which is about 20 pips on Friday's London closing level. EUR-JPY was up by a similar magnitude at levels around 139.50 in pre-London trading. Data showed Japan's current account deficit hit a fresh monthly record of Y638.6 bln, driven by a surge in the import bill for foreign energy products due to the combined effect of yen weakness and the closure of nuclear power plants. AUD-USD drifted below Friday's low to 0.8927 as the Aussie corrected after the strong gains that were seen last week and ahead of a key data and event week in Australia. Moody' stated that there was no "imminent threat" its AAA rating of Australian sovereign debt.

    [EUR, USD]
    The EUR has consolidated after jumping higher against the other majors following last Thursday's ECB unchanged policy announcement. The bigger picture technical picture has shifted to more neutral than bearish following the recovery above the 20- and 50-day moving averages, and the break above a six-week bearish trend line, though there reports of decent selling interest into 1.3650-60 and again into 1.3688-1.3700. Support comes in at 1.3595-1.3600, which encompasses the 20-day moving average. We still prefer selling into strength as we think focus will return to the possibility of the ECB taking further easing measures, possibly at its March meeting, while we expect the Fed, in contrast, to remain on its tapering course.

    [USD, JPY]
    USD-JPY logged a 10-day peak of 102.65 before settling lower. EUR-JPY was up by a similar magnitude at levels around 139.50. Data showed Japan's current account deficit hit a fresh monthly record of Y638.6 bln, driven by a surge in the import bill for foreign energy products due to the combined effect of yen weakness and the closure of nuclear power plants. Bigger picture, the yen's recent advance has come to a halt as the risk-off theme takes a breather amid a show of positive corporate earnings and decent-enough U.S. payrolls data last week. Major USD-JPY support comes in at 100.00-100.36, the latter of which is the 200-day moving average. Resistance can be expected at 102.80-103.00.

    [GBP, USD]
    Cable's technical picture remains tentatively bearish, despite the recovery above 1.6400, following the double rejection from forays above 1.6600 in late January and the subsequent breach (and continued hold below) of both the 20- and 50-day moving averages. We continue to target a return to the 1.6200-1.6220 area. Resistance is marked in the region of 1.6400-1.6440, which encompasses a cluster of former daily highs and lows, and the 50-day moving average.

    [USD, CHF]
    EUR-CHF edged out a 10-day high of 1.2250 as the Swiss currency unwinds some of its safe haven premium. The cross had been flirting with 1.2200 amid the backdrop of risk aversion in global markets, though the steadying in stock markets has lent the cross some support. The Dec-17 cycle low of 1.2167 has now fallen out of scope. SNB-speak last week affirmed that a removal of the 1.20 limit would only be considered if inflation was much higher had little impact. We wouldn't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD price action looks to be confirming the development of a topping formation. The recent run to a five-week peak of 1.1224 came with declining bullish momentum, which was a sign that the underlying trend was weakening. The breach and hold below of a series of consolidation lows in the 1.1030-1.1050 region (now resistance) strengthens the bearish case. The apparent head-and-shoulders pattern that was formed between late January and early February has projection target to 1.0800-1.0820. Key resistance is marked at 1.1100, ahead of 1.1175 and 1.1200.

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