XE Market Analysis: Europe - Jan 26, 2015 The dollar corrected some after posting fresh highs against most currencies. EUR-USD logged a fresh 11-year low at 1.1098, subsequently rebounding above 1.1200. In Greece, the opposition party Syriza won the Sunday election, putting the austerity programs in doubt. We think the ECB QE program should keep a lid on contagion in Eurozone markets, but investors will be keeping close tabs on how things unfold in Athens in the period ahead, with Grexit concerns likely to heighten. ECBs Visco said in an interview with the Handelsblatt that the QE program has no fixed in, which should also help maintain the euro as a sell-of-rallies trade. Elsewhere, USD-JPY dipped below is Friday low in making 117.26 before rebounding to 118.00. Short covering in EUR-JPY aided the pair higher. AUD-USD logged a new four-year low of 0.7858 in thin trade with Australian markets closed for a national holiday today. [EUR, USD] EUR-USD logged a fresh 11-year low at 1.1098, subsequently rebounding above 1.1200. In Greece, the opposition party Syriza won the Sunday election, putting the austerity programs in doubt. We think the ECB QE program should keep a lid on contagion in Eurozone markets, but investors will be keeping close tabs on how things unfold in Athens in the period ahead, with Grexit concerns likely to heighten. ECBs Visco said in an interview with the Handelsblatt that the QE program has no fixed in, which should also help maintain the euro as a sell-of-rallies trade. We anticipate that EUR-USD has much further to go to adjust to the ECBs QE program, which commences in March and sharply contrasts the U.S. Fed policy. An eventual move on parity doesnt look out of the question, with the September 2003 low at 1.0762 providing an interim big-picture target. [USD, JPY] USD-JPY dipped below is Friday low in making 117.26 before rebounding to 118.00. Short covering in EUR-JPY aided the pair higher. We expect USD-JPY will be biased higher in the bigger picture as Abenomics policies remain alive and well in Japan. A Bloomberg survey last week found 26 of 33 of economists forecasting new BoJ monetary expansion by the end of October. USD-JPY support is at 117.25, resistance at 118.83-87 and 119.00. [GBP, USD] Cable has held up relatively well in early-week trade, recovering the 1.50 handle as sterling rebounds from the 1.4951 low seen on Friday. Unsurprisingly, the pound has been faring better against the euro. EUR-GBP has clocked a new seven-year low at 0.7405. We think the cross is set for an eventual test of 0.7000 with the pounds credentials looking better than the euros, given the trending improvement in the UK labour market and signals from BoE members that a fresh stimulus package is not on the cards despite the recent sharp drop in inflation. [USD, CHF] EUR-CHF has drifted lower amid the general euro weakness, testing the waters below 0.9800 Friday before finding a footing, leaving the post-SNB-peg-abandonment low at 0.9714 untroubled for now. Swiss economy minister Schneider-Ammann said last week that uncertainty over franc rate may last for months. Lots of downward Swiss growth forecasts came as a consequence of the 20% appreciation of the franc. UBS slashed its 2015 forecast to 0.5% y/y from 1.8% y/y, and to 1.1% y/y from 1.7% for 2016, saying that watch exporters will be most affect by the surge in the francs surge. S&P Ratings said, however, that while exports will be impacted, Switzerlands strong economy and solid public finances will resist this exchange rate shock, and that its ratings of Swiss sovereign debt are unaffected. The SNB argued that while the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate, and that the economy is able to take advantage of this phase to adjust to the new situation. [USD, CAD] USD-CAD clocked a new trend high at 1.2460, and bounces have remained shallow following last weeks unexpected BoC rate cut, which the central bank said was insurance against downside risk to lower oil prices, which are unambiguously negative for the Canadian economy. Low oil prices are bad for the Canadian dollar as it erodes Canadas terms of trade, and some energy analysts are expecting NYMEX oil prices to trade below the 2009 NYMEX crude low at $40.68. USD-CADs August 2009 high at 1.3063 provides a big-picture target.
Posted on: Mon, 26 Jan 2015 12:23:33 +0000
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