Market Analysis: North America - Dec 31, 2015
Little ado about nothing would be an apt title if a Shakespeare-esq play was every written about currency trade on the morning of Dec-31, 2015. Most of the European continent was out, and heavily depleted London markets weren't too interested in trade making. The euro nonetheless traded in thin markets with a heavy tilt. EUR-USD drifted toward 1.0900, while EUR-JPY and other euro cross also ebbed. ECB member Contacio repeated that the central bank can expand policy further if needed, though he would prefer the policy remains steady. USD-JPY remained frozen in motion in the mid 120.00s, holding above the above the 10-week low at 120.16 that was seen on Monday. Cable made time in the low 1.48s after clocking a seven-month low at 1.4785 earlier in the week. AUD-USD edged out a three-week at 0.7327. The Aussie has been bid in the wake of the Fed's measured guidance after it hit the rate lift-off button on Dec-16, subsequently aided by signs that Beijing is headed for the stimulus spigot again -- a backdrop that has help commodity markets find a footing after a bearish year.
[EUR, USD]
EUR-USD remains settled in the low 1.09s after surviving a brief dip to 1.0899 on Tuesday. This level and Monday's peak at 1.0982 look likely to mark the low and high water marks of final-week trade in 2015. Resistance is marked at 1.1046 and 1.1056, which are the present situations of the 200- and 100-day moving averages, both of which have near horizontal profiles in reflection of the broadly sideways price action the pair has seen since making major-trend lows at 1.0462 back in March. The Dec-7 low at 1.0796 is a key level on the downside. The dollar is currently registering over a 3.5% decline versus the euro on the month so far, which looks set to be the first month of net declines the U.S. currency has seen against the shared currency since April. This is in large part testament to the Fed's measured guidance following the long-awaited rate lift-off last week. There seems to be mixed views in the market about the dollar's fate in 2016, one being that EUR-USD may rally, on net, during the year ahead following the steep, near 25% decline seen since May 2014. The Eurozone economy has been showing signs of recovery, while markets are already pricing in two 25 bp Fed hikes for 2016.
[USD, JPY]
USD-JPY continues to make time in the mid-120.00s, above the 10-week low at 120.16 that was seen on Monday. Reported option barriers at 120.00 remain in play. The technical picture is looking bearish. All of the 20-, 50-, 100- and 200-day moving averages were breached during the week before last. JPM research forecasts USD-JPY falling to 110.0 during 2016, arguing that the long-equity, short-yen play has been too crowded.
[GBP, USD]
Cable has recouped to the mid-1.48s after posting a seven-month low at 1.4785 earlier in the week, which marked a resumption of the bear phase seen during the middle two weeks of December, when the quid shed over 2.5% against the greenback as markets adjusted to a more dovish than expected tone in the minutes to the early December BoE monetary policy meeting, which were subsequently followed by a remark from the normally hawkish MPC member Weale that there was a "slightly less immediate" need to tighten. With the BoE's version of rate lift-off still some six months down the track and data dependent, we anticipate Cable will retain an overall downward bias. Resistance is marked at 1.4875. There is no UK data or events of note until the new year. Things will kick-off on Jan-4, when the December version of the Markit manufacturing PMI survey will be released, along with the BoE's monthly report on lending activity. USD-CAD is trading softer, on a 1.38 handle, after clocking to a new major-trend peak of 1.4001 on Dec-18. The combo of higher U.S. yields and low oil prices had been underpinning the pair, which gained over 4% during the first half of December. Steadier oil prices has since helped the Canadian dollar find its feet. Support is marked by a former high at 1.3781, while 1.4000-01 now marks resistance.
[USD, CHF]
EUR-CHF is trading steadier, back above 1.0800 after earlier in the month making daily closing lows below here for the first time since mid-November. The cross left a one-month low of 1.0756 on Dec-18. We expect EIR-CHF to remain comfortably above the sub-1.0500 levels that prevailed earlier in the year before the SNB cut the deposit rate to -0.75%.
[USD, CAD]
USD-CAD has settled near 1.38, softer after clocking to a new major-trend peak of 1.4001 on Dec-18. The combo of higher U.S. yields and low oil prices had been underpinning the pair, which gained over 4% during the first half of December. A stabilisation in oil prices has since helped the Canadian dollar find its feet. Support is marked by a former high at 1.3781, while 1.4000-01 now marks resistance.
