XE Market Analysis: North America – Feb 12, 2016

XE Market Analysis: North America – Feb 12, 2016

The yen’s seeming one-way ascent has come to a pause, partly amid the perceived threat of BoJ intervention and partly as risk-off positioning unwound some today. Brent crude rallied over 4% and more than recouped yesterday’s declines, while European equities managed a rebound. Oil continues to be the driver of global sentiment, being symbolic of China’s transition economy and demand/supply imbalances in crude and other commodities. The UAE Energy minister yesterday gave oil a helping hand in saying that cooperation among members to trim output is afoot. We have even had news suggesting all is not rotting in the banking sector, with Commerzbank announcing earlier its first dividend since 2007. Japan’s Nikkei 225 closed heavily in the red today, at -4.8%, but this was a catch-up trade following yesterday’s public holiday in the land of the rising sun. USD-JPY logged a rebound high of 113.01 before ebbing back to the 112.00 area. The pair yesterday clocked a 15-month low at 110.98. Elsewhere, the beleaguered commodity currencies have managed to steady, and EUR-USD has settled in the low 1.13s after making a four-month high at 1.1376 after the London close yesterday.

The euro has been correction mode today, showing 0.3%-0.8% declines versus the dollar, yen and sterling, and a more modest ebb against the Swiss franc. This put EUR-USD to a 1.1265 low, down by nearly 1% from yesterday’s four-month peak at 1.1376, though the pair still remains 0.9% on the week. Steadier oil prices following yesterday’s news that Opec members are looking to cut production (maybe this time is different), and a rebound attempt in European stock markets, has been helping foster a corrective tone in forex markets. Euro sellers have fundamentals on their side, at least against the dollar as incoming data out of the Eurozone have largely been discouraging, in contrast to the U.S. picture, and we expect the ECB to at least re-affirm dovish guidance at its policy meeting in March.

Japanese markets returned from yesterday’s holiday and stocks duly plummeted, leaving the Nikkei 225 down to the tune of 4.8% at the close, a 16-month low in what is now one of the worse weekly performances on record, in reaction to the mega appreciation of the yen, which is amid its biggest rally since 2008. Japanese policymakers are showing signs of fretting. BoJ boss Kuroda repeated that the central bank would not hesitate expand monetary stimulus today, and yesterday MoF’s Asakawa, the boss of FX policy in Japan, said that his ministry is watching markets “to see if there are speculative moves.” Aside from the increasing odds of direct FX market intervention, the pressure is mounting on the BoJ to make a bigger commitment to NIRP (a la SNB, Riksbank) beyond its current -0.1% rate on excess reserves, which is watered down by a three-tier system of implementation. USD-JPY logged a rebound high of 113.01 today in Tokyo before quickly ebbing back to the 112.00 area. The pair yesterday clocked a 15-month low at 110.98.

Sterling is firmer today, rebounding some after underperforming this week relative to the G3 currencies. Data this week have been bearish for the pound, on net. UK production data for December was unambiguously week, with the y/y figure turning negative for the first time since September 2013, and while trade numbers showed a narrowing in the total deficit in December, this was offset by big revisions to deficit readings in November. We recommend selling sterling into rallies, particularly against the yen and the dollar. Markets have now priced out any chance of the BoE hiking rates before next year following last week’s publication of the BoE’s quarterly Inflation Report, which detailed lower growth and inflation projections.

EUR-CHF has found a footing after tumbling to a low of 1.0958 on Tuesday, which is the lowest level seen in almost three weeks. The heightened risk-off backdrop clearly cast impact in driving the cross down from the one-year peak seen last week at 1.1199, although the franc has lost a lot of its former attractiveness as a safe haven currency with interest rates at a lowest-in-the-world -0.75%. SNB policymakers have been quite vocal since the start of the new year in emphasizing their desire for a weaker franc. EUR-CHF resistance is now at 1.1000.

USD-CAD has been oscillating around the 1.3900 level in recent sessions, consolidating after clocking an eight-week low of 1.3639 last Thursday. The Canadian dollar continues to track oil prices, which had rallied strongly over the last couple of weeks, but are now back under pressure. USD-CAD’s drop from its Jan-20 peak is quite notable from a technical perspective, with the pair last week closing below the 20-day moving average for the first time since Oct-20 last year. This follows a near 7% decline from the 12-year peak at 1.4690.

All of this is telling us the value of paper money is decreasing. People who hold gold and silver are maintaining or strengthening their buying power. That is why you should be moving more of your paper money into silver and gold. See my website for the best coin dealers. The site will be opened by Feb. 22.


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