XE Market Analysis: North America 2015
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The dollar has traded mixed, gaining against an underperforming euro, rising versus sterling while posting modest gains versus the yen, which ebbed against most currencies amid stock market rallies in Asia and Europe. Chinese stocks rebounded strongly from Monday and Tuesday's steep declines, which led Asian and European markets higher. There is a view, which we concur with, that even if the Fed pulls the rate-hike trigger tomorrow, it would accompany it with offsetting dovish guidance. EUR-USD ebbed to a six-day low of 1.1223 amid broader euro underperformance, dipping below the 200-day moving average at 1.1229. Euro losses were prompted by remarks from ECB members Constancio and Nowotny, who said that an extension in QE is possible. These comments were then followed by an unexpected revision lower in Eurozone HICP, to 0.1% from 0.2% in August. USD-JPY, meanwhile, lifted above 120.50 despite a decline in EUR-JPY, but the pair remained shy of yesterday's high at 120.65. Sterling has been the day's star performer, with data showing UK unemployment unexpectedly dipping to 5.5% and perkier than anticipated wages. Cable lifted from 1.5350 to a high of 1.5434.
[EUR, USD]
The euro has traded lower, first at the prompt of ECB-speak with Constancio saying said that the small size of the central bank's bond-buying programme to date gives scope for more action, and his colleague Nowotny saying that an extension in QE is possible. The next prompt was an unexpected revision lower in Eurozone HICP, to 0.1% from 0.2% in final August data. EUR-USD dipped to a six-day low of 1.1227, testing the 200-day moving average that is presently sitting at 1.1229. EUR-JPY and other euro crosses have seen a similar price action. Constancio's and Nowotny's remarks seem well timed, being a day ahead of the Fed's decision tomorrow, with Eurozone policymakers perhaps eager to undermine any perceived safe-haven credentials of the euro.
[USD, JPY]
USD-JPY has managed to re-establish itself about 120.00 as global stocks manage to post decent gains, albeit in low volumes, into the Fed's decision on Thursday. Market analysts are evenly divided on tightening prospects, but even in the even of a rate hike, which we also expect, the Fed is likely to mollify market concerns will dovish guidance. We therefore take a cautiously bullish view of USD-JPY, thought the risk is we see further China stock market volatility regardless, a circumstance that would support the yen via its status as a haven.
[GBP, USD]
Sterling liked the July-August UK labour report, which saw the unemployment rate unexpectedly dip to 5.5%, which matches the cycle low that was last seen in April, average household wages come in perkier than anticipated, and total employment rise by an above-median 42k over the last quarter. These offset an unexpected rise in the August claimant count, which rose 1.2k in August after a 6.8k drop in July (revised from -4.9k). Cable lifted by nearly 0.4% in rising from 1.5350 to a high of 1.5406, since settling around 1.5390-1.5400. The move recouped about three quarters of the decline seen yesterday in the wake of inflation data that showed CPI ebbing to 0.0% y/y from 0.1%. Price action in Cable has been somewhat convoluted in recent sessions. EUR-GBP has dipped into five-day low territory under 0.7300 in the wake of the labour data, having on route breached both the 20- and 200-day moving averages.
[USD, CHF]
EUR-CHF has settled back under 1.1000 after last week trading above here the first time since the SNB abandoned its former cap on the franc in January. General euro gains and a steadier tone in global stock markets has been conducive of franc declines. Swiss policymakers have also been successful in undermining the Swiss currency's status as a safe haven, with deeply negative deposit rates having caused a steady drip feed of yield-searching Swiss fund outflows.
[USD, CAD]
USD-CAD remains in a consolidation pattern centred around 1.32-1.33 in the wake of logging a 12-year peak at 1.3353 on Aug-25. The pair has been whipsawed by swings in oil prices in recent sessions, which the Canadian dollar correlates positively to. USD-CAD support is at 1.3200 and 1.3100-16.
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