Currency Report 12 Nov. 2015

Eur/Usd The Euro was unable to make any impression resistance towards 1.0800 against the dollar on Wednesday, but did show some resilience at lower levels with sellers unable to force another break below the 1.0700 level.   There was further overall downward pressure on Euro-zone yields with German 2-year yields at fresh record lows at around 0.36% which put the US yield premium at over 120 basis points. ECB member Constancio stated that monetary policy needed to remain accommodative while Estonia representative Hansson reiterated his recent comments that there was no need for a deposit rate cut at this time. ECB President Draghi made no comments on monetary policy which disappointing Euro bears to some extent and triggered a round of short covering.  Late in the European session, there were reports that the ECB could consider extending the bond-buying programme to include municipal bonds which pushed the Euro lower again as markets continued to expect fresh action in December. US bond markets were closed for the Veterans Day holiday which curbed activity , although equity markets were open. The Euro was again able to resist a fresh slide through the 1.0700 support area. ECB member Coeure stated that the bank does not have to act in December and has yet to decide on fresh easing which caused some underlying uncertainty. US jobless claims and retail sales data will be monitored closely, although the impact may be measured unless extremely weak. Evidence of a rising dollar funding costs should offer some dollar protection as the Euro stalled in the 1.0780 area
Jpy The dollar was unable to mount a fresh challenge on resistance in the 123.50 area on Wednesday and rifted weaker as the underlying consolidation following Friday’s surge on US employment data continued. There was no lead from US bond markets which stifled activity to some extent as the Euro hit resistance close to 132.50. There were further strong outflows from Japan into overseas bonds in the latest weekly data which will tend to maintain underlying downward pressure on the yen through the capital account. Latest core Japanese machinery orders data was stronger than expected with a monthly gain of 7.5% for October following a 5.7% slide the previous month which will provide some yen support and there were some speculation that the Bank of Japan could taper bond purchases during 2016. The dollar overall was able to find support on dips to the 122.80 area with overall yield spreads offering protection.
Gbp  There was mixed UK employment data with a further small increase in the claimant count of just over 3,000 for October, but unemployment fell to 5.3% from 5.4%, the lowest rate since the middle of 2008. Although there was evidence of a tighter labour market, there was a weaker than expected figure for earnings with an unchanged headline growth of 3.0% while underlying growth slowed to 2.5% from 2.6%. Bank of England chief economist Haldane maintained his generally dovish comments with suggestions that inflationary pressures remained weak while the bank could adjust interest rates in either direction. On a slightly more hawkish tone he stated that a looser policy was not his central view.  The latest central bank agents survey stated that growth had slowed over the past few months, especially in the manufacturing sector.  In contrast, housing data remained firm with the RICS house-price index rising to 49% from 44% previously. Sterling challenged Euro support levels near 0.7050 while there was a move above 1.5200 against the dollar.
Chf   The Euro was again unable to move above the 1.0800 level against the franc on Wednesday while the dollar was generally in a consolidation pattern with resistance on approach to the 1.0080 area while there was support above the parity level.  There was further talk of monetary easing from ECB sources and the National Bank will remain uneasy over the situation, especially given the possibility of a deposit-rate cut, given concerns that the negative yield differential could be eroded which could lead to further upward pressure on the Swiss currency.
Regards All.

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