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By XE Market Analysis February 25, 2014 7:39 am
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    XE Market Analysis: North America - Feb 25, 2014

    The USD remained soft, with Cable probing 1.6700 after BoE's McCafferty said that market expectations for a repo rate hike in Q2 2015 were not unreasonable, USD-JPY dipping to the low 102s as European stocks headed south (though the Nikkei managed a 1.4% closing gain), and EUR-USD lifting to the mid-1.37s. Most dollar pairings remained inside their respective ranges from yesterday, though Cable's gain was enough to put it at a new high for the week, at 1.6706. Data was highlighted today by stronger than expected BBA mortgage approvals and CBI distributive sales out of the U.K. Other data included a sub-expectations CPSI price gauge out of Japan. In Europe, Italian PM Renzi won a confidence vote in the Senate, while a slew of disappointing corporate earnings results weighed on the STOXX 600, which was showing a net 0.4% decline at the time of writing. In China, the PBoC guided USD-CNY to its biggest daily gain in two years, to 6.1200, reflecting a change in stance of Chinese policymakers.

    [EUR, USD]
    EUR-USD has continued to oscillate in the 1.37s. We continue to anticipate further EUR-USD weakness. Pressure on the ECB to take further monetary action into its March policy meeting has been growing Eurozone PMI data that showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly, coming amid a backdrop of disinflation. The possibility of introducing a negative deposit rate be a topic in ECBspeadk into next month's policy meet. Technically, the EUR-USD picture looks bearish. A two-week run higher to last week's peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period, which had been associated with a notable drop in upside momentum following a six-month rally phase.

    [USD, JPY]
    USD-JPY dipped to the low 102s as European stocks headed south (though the Nikkei managed a 1.4% closing gain). There is little overall directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown and its negative consequences on global stock markets is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83, ahead of 103.00-103.10, which encompasses the 50-day moving average. Support is at 102.00 and 101.66, ahead of major support at 100.00-100.71, the latter of which is the 200-day moving average.

    [GBP, USD]
    Cable probed 1.6700, leaving a new high for the week at 1.6706, after BoE's McCafferty said that market expectations for a repo rate hike in Q2 2015 were not unreasonable. U.K. data played a supporting role with both the latest releases of BBA mortgage approvals and the CBI distributive sales coming in above market expectations. Bigger picture, sterling has established a firmer underpinning from a subtle change in some BoE MPC members' language, with both Weale and Broadbent having remarked in recent days that wages should start rising this year, though Governor Carney stuck to the boilerplate "we will not take risks with the recovery." We don't advise taking a bullish view, however, as we anticipate incoming data will show recovery momentum to be decelerating, and signs of the recent weather impact are likely to start appears in data too. Cable support is at 1.6625-1.6600. Resistance at 1.6706-25 and 1.6740. Cable met good selling in the 1.6700-25 zone in the latter part of last week, and the same again would likely be seen again.

    [USD, CHF]
    EUR-CHF has remained at sub-1.220 levels. The recent break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope. SNB-speak this month reaffirmed the strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). We don'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 capped out just shy of 1.1200 on Friday after a perkier than anticipated outcome in Canadian CPI data, which undermined BoC easing expectations. On balance, the risks remain to the upside as the growing signs of China slowing may weigh on the commodity currency bloc. The Jan-31 major-trend peak at 1.1224 is a key level now, while good selling interest is likely into 1.1200 too. Support comes in at 1.1035, ahead of 1.1020-25 and 1.1000.

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