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By XE Market Analysis July 10, 2019 2:06 pm
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    XE Market Analysis: Asia - Jul 10, 2019

    Fed chair Powell all but confirmed a rate cut later this month, as he spoke in dovish tones in testimony to the House Financial Services Committee. Short yields dove, while Wall Street rallied, and the Dollar headed lower. The DXY fell from over 97.45, to a low of 97.06 through the morning session. EUR-USD topped over 1.1260, while USD-JPY headed under 108.45 from early highs near 108.95. USD-CAD initially fell under 1.3070, though rallied to 1.3143 highs after the BoC revealed trade and investment concerns.

    [EUR, USD]
    EUR-USD topped at 1.1263, up from near 1.1215 ahead of initial Powell headlines. A 25 basis point cut at the end of the month FOMC meeting appears to be a done deal following Powell testimony this morning, and the Dollar has generally remained under pressure. For EUR-USD, the combination of a dovish Fed, and an ECB that remains vague on additional stimulus, may see further EUR-USD gains going forward. Support is now at 1.1238, the 50-day moving average, with resistance at 1.1284, the 20-day moving average.

    [USD, JPY]
    USD-JPY came under some renewed pressure, after bouncing to 108.75 from early post-Powell lows of 108.53. The pairing has since dipped under 108.45, taking its cue from Wall Street, which pared back earlier gains to record levels. The DJIA remains higher, though has shed more than 150 points from its best levels, putting some downward pressure on USD-JPY. Support is now at Monday's low of 108.28.

    [GBP, USD]
    Cable reversed Tuesday's decline, making a two-day peak so far at 1.2520 and extending the rebound from the trend low at 1.2439. A 0.3% rise in the rolling three month UK GDP figure for May, which surpassed the median forecast for a 0.1% gain, and which offset marginally disappointing production data, had given the market a jolt during the London AM session, while a weakening dollar environment following Powell testimony gave added bullish impetus for Cable. We wouldn't advise trend following GBP gains given the evident impact that prolonged Brexit uncertainty, and increased risk of a on-deal exit from the EU, have been wielding on the UK economy, though dollar weakening make carry Cable some way higher yet.

    [USD, CHF]
    EUR-CHF has put in a couple of weeks of steady, range-bound trading after dropping sharply in mid June as markets adjusted to increased prospects for the ECB to return to the dovish policy tap. The cross printed a two-year low at 1.1057 before recouping to levels around 1.1100. The advance of the Franc against the Euro will 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 last month that downside risks to the economy have increased, and that the overall policy setting "remains as expansionary as before." With the ECB increasingly under pressure to ease policy again, the SNB remains eager to counter Franc appreciation, especially against the Euro. Assuming the ECB remains on the path of further monetary policy easing, we would expect EUR-CHF retain a declining bias.

    [USD, CAD]
    USD-CAD fell with the Greenback overall in the aftermath of Powell headlines, which left a July rate cut fully priced in. The pairing bottomed at 1.3071, down from earlier highs over 1.3125. USD-CAD spiked up to eight-session highs of 1.3143 from near 1.3085 following the BoC announcement, which left rates unchanged, as expected. The Bank's statement revealed some concern over the outlook, noting that trade tensions are weighing on manufacturing, investment and commodity prices, while the Fed and ECB lean toward policy easing. Overall, a fairly dovish take, which weighed on the CAD.

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