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By XE Market Analysis January 8, 2014 3:05 am
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    XE Market Analysis: Europe - Jan 08, 2014

    Yen weakness has been the main theme amid rising stock markets in Asia, following a solid close on Wall Street -- a backdrop that the funding currency of choice typically weakens to. Both USD-JPY and EUR-JPY logged a six-day peaks, of 105.00 and 143.16 respectively. The price action has brought USD-JPY's five-and-a-half year peak of 105.44, made on Jan-2, back into scope. EUR-USD oscillated between 1.3605 and 1.3635, and at 1.3628 bid at the time of writing, was about 20 pips up on London's closing level yesterday. Eurozone data today, including German trade and manufacturing orders, and Eurozone retail sales, are expected to be net positive, though we also expect the U.S. ADP jobs report to paint an encouraging picture, while the FOMC minutes from the Dec 17-18 meeting, where the Fed pulled the QE tapering trigger, are also due. Elsewhere, the AUD has been mixed, slightly lower versus the EUR, near flat against the USD and up versus the JPY. Australian construction PMI for December fell to 50.8 from 55.2.

    [EUR, USD]
    Yen weakness has been the main theme amid rising stock markets in Asia, following a solid close on Wall Street -- a backdrop that the funding currency of choice typically weakens to. Both USD-JPY and EUR-JPY logged a six-day peaks, of 105.00 and 143.16 respectively. The price action has brought USD-JPY's five-and-a-half year peak of 105.44, made on Jan-2, back into scope. Data on Monday showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive the yen to fresh lows during the year. The risk to this view would be a sustained bout of risk aversion in global markets, which some think possible giving richly price stock markets and tightening courses of the U.S. and China..

    [USD, JPY]
    USD-JPY rebounded back above 104.50 after a brief dip under 104.00 during the New York afternoon session. EUR-JPY was also firmer as the Tokyo market sold yen following data that showed Japan's monetary base surged 46.6% y/y in December to a record Y193.5 tln, illustrating the impact that the BoJ's reflationary policy is having (the central bank is targeting a monetary base to Y270 tln by the end of 2014). We expect this policy will continue to drive the yen to fresh lows during the year.

    [GBP, USD]
    GBP-USD recovered the 1.6400 handle once again following another dip below here. The softer than expected December PMI data provided a speed bump with regard to U.K. economic expectations, though it doesn't change the overall positive outlook for the economy, and a moderation was to be expected after a period of above long-term trend growth. Cable support is marked at 1.6370, ahead of 1.6345-1.6350, and resistance is at 1.6420. We remain sterling bullish.

    [USD, CHF]
    The CHF has remained on a weaker footing. USD-CHF has scaled back above 0.9000 and EUR-CHF breached above 1.2300 for the first time in a month, and is closing in on 1.2400, up from its pre-Fed tapering decision low of 1.2166, which was the lowest level seen in eight months. This reflects an unwinding in the Swiss currency's safe haven premium as the period of Fed policy uncertainty ended with its decision to commence QE tapering. Resistance comes in at 1.2400, support at 1.2370 and 1.2350.

    [USD, CAD]
    USD-CAD has broken sharply higher on a bullish U.S. dollar outlook and weaker Canadian data, underpinned by favourable movement in yield differentials. The pair broke both 1.0700 and 1.0800, taking out its Dec-20 major trend peak of 1.7337 on route. The price action marks a break higher after some pretty choppy price action over the last several of weeks. Resistance can now be expected at 1.0850 and 1.0900. The previous trend peak of 1.0737 and 1.0700 now provide support.

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