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By XE Market Analysis July 3, 2019 12:57 pm
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    XE Market Analysis: Asia - Jul 03, 2019

    The Dollar index slipped in N.Y. morning trade on Wednesday, though later perked up again into the July 4th holiday. The DXY slipped to 96.60, later rallying back to 96.82 highs. The USD has held the bulk of gains seen at the start of the week, as Fed easing sentiment has come off the boil some since the trade truce last weekend. Incoming data was on the soft side, with the ADP jobs report missing expectations, and factory data softer than expected. EUR-USD eased back from 1.1312 highs, bottoming at 1.1272 after the London close. USD-JPY rallied back from 107.58, later peaking over 107.85. USD-CAD was heavy, despite lower oil prices, touching 1.3064 lows. GBP-USD remained pressured, hitting two-week lows of 1.2557.

    [EUR, USD]
    EUR-USD saw sellers return over the 1.1300 mark earlier, with the pairing back near N.Y. session lows, at 1.1280. Despite relative weakness in the ADP job report, and the softer services PMI, the pairing remains heavy following the nomination of dovish tilting Lagarde to replace Draghi as ECB chief. Ramped up talk of further ECB stimulus should limit Euro upside going forward, especially as Fed easing expectations have faded some. The two-week low of 1.1269 is the next support level, with 1.1322, Tuesday's high, marking resistance.

    [USD, JPY]
    USD-JPY recovered from post-ADP lows of 107.58, bouncing over 107.85 highs, after failing to test the overnight six-session low of 107.54. Soft Treasury yields (10-year at 1.95%) limited upside for the pairing, though another Wall Street rally effectively contained losses. Activity wound down early today, as many made their way out the door ahead of Thursday's Independence Day holiday.

    [GBP, USD]
    Cable dipped to a two-week 1.2557 low in the wake of the miss in the UK's June services PMI. The services PMI disappointed at 50.2, a three-month low and dropping from May's 51.0 reading. The median forecast had been for a more modest decline to 50.6. The June composite PMI worked out at 49.2, dropping sharply from May's 50.7, dragged lower by weak construction and manufacturing components. This is the first time since July 2016 that the composite PMI has been below the 50.0 mark. As for Brexit, the news flow has remains quiet in terms of substantive developments. That will change as soon as the new prime minister, most likely Boris Johnson, takes up the reigns in mid-July.

    [USD, CHF]
    EUR-CHF has found a footing after coming under significant pressure last week, in the wake of ECB President Draghi's eyebrow raising dovish shift, which has been the most notable of a growing chorus of dovish voices on the central bank's governing council. The cross printed a 23-month low at 1.1057 before recouping to levels around 1.1100. The advance of the Franc against the Euro will doubtlessly be displeasing to the SNB (the EUR-CHF cross being a good proxy on the Swiss currency's trade weighted value). The SNB restated at its quarterly policy review this month that downside risks to the economy have increased, and that the overall policy setting "remains as expansionary as before." The central bank also nudged its inflation forecast lower, now expecting CPI to average just 0.6% y/y this year, 0.7% in 2020, and 1.1% y/y in 2021.

    [USD, CAD]
    USD-CAD fell to session lows of 1.3064 from near 1.3100 following the trade data, which revealed a wider U.S. deficit, and an unexpected Canada surplus. WTI crude prices were off trend lows, but remained weak overall, and should limiting USD-CAD downside potential. Last Friday's eight month low oat 1.3060 provides the next support level. With the U.S. on holiday Thursday, trade will likely remain thin, especially ahead of the twin U.S./Canada jobs reports on Friday.

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