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By XE Market Analysis June 10, 2019 3:27 am
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    XE Market Analysis: Asia - Jun 08, 2019

    The Dollar took a rotation lower following an underwhelming May employment report out of the U.S. The narrow trade weighted USD index settled off lows by still with a 0.4% decline, at 96.56, which is an 11-week closing low. EUR-USD concurrently saw a Dollar-selling driven rally, which saw the pair finished at an 11-week closing high, at 1.1334-34. USD-JPY over 50 pips in printing a two-day low at 107.88, before closing at 108.09-10. The U.S. May employment report undershot expectations across the board, with a lean 75k May payroll gain after 75k in downward revisions, and weakness in both the goods and services components. We saw another restrained 34.4 workweek reading that left an anemic 0.1% bounce for hours-worked after a revised -0.2% (was -0.1%) April figure. The wage data were a tad short of assumptions, with a 0.2% May. Overall, the data exacerbated fears that slowing in manufacturing and capex on trade uncertainties are spilling over to the broad economy and the labor market. This, naturally, boosted Fed easing expectations, with implied Fed funds futures showing about 25% risk for a 25 bp cut at the June 18-19 policy meeting.

    [EUR, USD]
    EUR-USD saw a Dollar-selling driven rally, which saw the pair finished at an 11-week closing high, at 1.1334-34. The catalyst was a much weaker than anticipated U.S. May jobs report, which exacerbated fears that slowing in manufacturing and capex on trade uncertainties are spilling over to the broad economy and the labor market. This, naturally, boosted Fed easing expectations, with implied Fed funds futures showing about 25% risk for a 25 bp cut at the June 18-19 policy meeting. EUR-USD posted a 1.5% rise on the week, which is the biggest weekly advance since August last year. This will likely set the pair up for some follow-through buying, though Dollar bears should tread carefully as any resumption in risk-conditions would carry the possibility of safe-have demand for Dollars, while incoming data out of the Eurozone will come with downside risk. EUR-USD has support at 1.1276-78, and resistance at 1.1347-50.

    [USD, JPY]
    USD-JPY fell over 50 pips following the U.S. jobs miss, printing a two-day low at 107.88, before closing at 108.09-10. There could be scope for yen underperformance should risk-off position step up on Monday amid Fed and other central bank easing expectations, and after President Trump announced that the U.S. and Mexico have reached a deal on migration, which should see the threatened tariffs put aside. Attention will also switch back to the the U.S.-Chia trade battle. USD-JPY has resistance at 108.60-65, and support at 107.35-38.

    [GBP, USD]
    Cable tracked EUR-USD higher in the wake of the underwhelming stateside jobs report. The softer Dollar propelled Sterling to a 17-day high, at 1.2763, setting up what was the first up-week the pairing has seen in five weeks. However, the Pound has fared less well against the Euro, earlier printing a three-day low against the common currency, returning to within a pip of the five-month low seen earlier in the week. This week's May PMI data out of the UK painted a picture of an economy limping along at a marginal rate of expansion, with modest expansion in the dominant service sector offsetting contracting construction and manufacturing sectors. The focus in the UK is now squarely on the Conservative Party's leadership contest, which formerly commences on Monday and will, by late July, have installed a new prime minister. Boris Johnson remains the favourite, who favours a hard, no-deal-if-necessary Brexit. This should limit the pound's recovery potential. After one month of underperformance, we expect the pound will now establish a consolation range at the newly established lower levels as market participants, having priced-in richened odds for a no-deal scenario and a softened UK economic outlook, wait on substantive developments.

    [USD, CHF]
    EUR-CHF lifted to an eight-day high at 1.1207, reflective of broader Euro gains and a degree of unwinding in safe-haven positioning amid a burgeoning in central bank easing expectations. The gain put some further space in from the 23-month low that was printed at 1.1119 earlier in the week. The SNB's Alternate Governing Board Member Moser said recently that in his view "if we had higher interest rates then we would have a stronger exchange rate", which something the central bank is ever eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said that the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase.

    [USD, CAD]
    USD-CAD dove sharply to an 11-week low at 1.3262, and closing only 5 pips above this level in what was the biggest weekly drop since February 22 and the biggest weekly drop since the last week of December. Sub-forecast U.S. jobs data juxtaposed to sub-forecast Canadian jobs data provided forex markets with an equation with a clear-cut bearish answer. We expect follow-through selling of USD-CAD in the days ahead. USD-CAD has resistance at 1.3303-05.

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