Home > XE Community Forums > XE Market Analysis > XE Market Analysis: Europe - Feb 17, 2014

AD

XE Market Analysis

Topics834 Posts848
By XE Market Analysis February 17, 2014 2:30 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 668
    XE Market Analysis: Europe - Feb 17, 2014

    The USD extended lower, continuing the recent theme in Asia after a run of sub-expectations data out of the U.S. Sterling was an outperformer, with Cable running to a new major-trend highs of 1.6822, GBP-JPY to a two-week peak of 170.92 and EUR-GBP a fresh one-year low of 0.8164. The pound has been in strong demand since the BoE raised its GDP forecasts earlier in the month, although BoE Governor Carney reiterated over the weekend that interest rates will rise only when there is a sustainable growth in jobs and income, while the bout of bad-weather in the U.K. is likely to shave Q1 growth data. The February U.K. Rightmove House Price Index came in at a very solid +3.3% m/m. Elsewhere, EUR-USD edged out a three-week high of 1.3725, and AUD-USD a one-month high to 0.9069. USD-JPY logged an 11-day low of 101.39. There were a batch of data and news developments. China lending figures rose to a new record, which helped drive a stock market rally in Asia, offsetting disappointing Japanese Q4 GDP, which came in with a preliminary estimate of 0.3% q/q (median 0.7%). China's benchmark 7-day repo fell to lowest in a month. In the Eurozone, Moody's upgraded its outlook for Italy to stable from negative and EC's Coeure repeated that the central bank is ready to take "decisive action if required."

    [EUR, USD]
    EUR-USD edged out a three-week high of 1.3725 on Monday, which reflects continued USD weakness after a run of sub-expectations data out of the U.S. In the Eurozone, Moody's upgraded its outlook for Italy to stable from negative despite the latest episode of political uncertainty there. We still prefer selling EUR-USD into strength as prevailing levels are starting to look rich against fundamentals. ECB's Coeure repeated that the central bank is ready to take "decisive action if required" and the possible use of a negative deposit rate will likely remain a topic in ECBspeak. In the U.S., meanwhile, we see that both the U.S. recovery and the Fed's tapering course as remaining on track. Resistance is marked at 1.3739 (the Jan-24 peak). Bigger picture, the multiple rejections from 1.38+ levels from last October had been associated with a notably drop in momentum following a six-month rally phase.

    [USD, JPY]
    USD-JPY logged an 11-day low of 101.39 following weaker than expected Japanese GDP, which came in with a preliminary estimate of 0.3% q/q (median 0.7%). China lending figures rose to a new record, which helped drive a stock market rally in Asia. USD-JPY major support comes in at 100.00-100.55, the latter of which is the 200-day moving average. Resistance cane be expected at 102.00, and strong resistance at 103.00.

    [GBP, USD]
    Sterling was an outperformer, with Cable running to a new major-trend highs of 1.6822, GBP-JPY to a two-week peak of 170.92 and EUR-GBP a fresh one-year low of 0.8164. The pound has been in strong demand since the BoE raised its GDP forecasts earlier in the month, although BoE Governor Carney reiterated over the weekend that interest rates will rise only when there is a sustainable growth in jobs and income, while the bout of bad-weather in the U.K. is likely to shave Q1 growth data. The February U.K. Rightmove House Price Index came in at a very solid +3.3% m/m. We are a little wary about Cable's advance as the BoE isn't in any rush to tighten policy despite economic recovery with domestic pay awards remaining negative and inflation pressures waning. We also see both the U.S. recovery and the Fed's tapering course as remaining on track.

    [USD, CHF]
    The CHF traded firmer in recent sessions. EUR-CHF has drifted toward the 1.2200 area after making a two-week high of 1.2267 in the early part of last week as the Swiss currency unwound some of its safe haven premium, reflecting what had been a general recovery in stock markets. The Dec-17 cycle low of 1.2167 is now back in scope. SNB-speak this month has 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]
    We continue to favour selling into USD-CAD gains as the price action from late January to early February confirmed a head-and-shoulders pattern 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. Projections target the 1.0800-1.0820 area. Initial resistance is at 1.10130-1.1050, while key resistance is marked at 1.1100, ahead of 1.1175 and 1.1200.

    Paste link in email or IM