MARKET WATCH
upside, a break to the downside should not be ruled out. Market positioning and sentiment heavily favor further dollar losses, but the widening short-term interest rate differential (think Eurodollar and Euribor) makes
it increasingly
costly to be long dollars against the euro without the euro appreciating to offset the carry (interest rate differential). Currently, that interest
rate
d iffe r e n t ia l translates into about five basis points a week.
Te $1.2180- $1.2200 area offers chart support, but on March 1, the euro spiked down to $1.2155 before staging a key reversal. But before the euro can set up a test on those important supports, it must punch through the base in the second half of March near $1.2240. A break of the range would set up a test on the $1.1940-$1.2040 area initially.
YEN
Te Japanese yen was the strongest of the major currencies in Q1, rising 6.1% against the US dollar. Te highs were made late in the
quarter, amid reports of aggressive exporter hedge-related dollar sales. Te dollar fell to JPY104.55 on March 26, the lowest level since November 2016. It posted its own key reversal that day, and two days later, it tested JPY107.00. Te dollar-yen exchange rate strikes us to be oſten rangebound,
FX
upside, the JPY107 is the nearby cap, but JPY108 may be more significant. Te upper end of the broad range may come in around JPY110.
STERLING
Sterling has been trending higher since the so- called flash crash in October 2016. The uptrend, though, did not begin in earnest until March 2017. Sterling peaked in late January just below $1.4350. With a few exceptions since it has been confined to a $1.38- $1.42 range. The
and when it looks like it is trending it is moving from one range to another. Now, perhaps at the start of the new fiscal year, a new range is being established. For the last three quarters of 2017, the dollar largely traded in a JPY108-JPY115 range.
We do not know the new broad range yet, but there does appear to be a near-term range. Te floor is had been JPY105, but now it JPY104.55. A break would suggest potential toward JPY100. On the
beginning of the next stage of Brexit negotiations, the recent string of economic data, and two dissents at the last MPC meeting, calling for an immediate hike helped bolster sterling. Half of Q1’s 4% gain took place in March amid these favorable developments.
If there is a major central bank that can keep up with the Federal Reserve this year, the Bank of England is one of the few candidates. Talk of three more hikes this year in the US has
FX TRADER MAGAZINE April - June 2018 11
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