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By XE Market Analysis June 20, 2019 2:41 pm
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    XE Market Analysis: Asia - Jun 20, 2019

    The Dollar attempted to rally in morning trade, as Wall Street surged on spillover FOMC dovishness and mixed incoming data. The Greenback pulled back later, as stocks faded some,and Treasury yields remains soft, taking the 10-year rate under 2.00%. EUR-USD topped at 1.1315 early, later bottoming at 1.1271, then edging back over 1.1290. USD-JPY peaked at 107.56, later dropping to trend lows under 107.25. USD-CAD fell to 1.31561, later recovering over 1.3220. Cable sold off modestly following the BoE policy announcement, falling to 1.2672, then heading back over 1.2700.

    [EUR, USD]
    EUR-USD fell back from seven-session highs of 1.1315 seen after the early round of U.D. data, later pulling back to 1.1271. Dollar weakness remained largely intact following the dovish FOMC on Wednesday, though with ECB officials ramping up the dovish rhetoric this week, sustained Euro gains may be difficult to come by. ECB members De Guindos, Rehn and Knot, today reaffirmed dovish messages, following the lead of central bank president, Draghi, earlier in the week, who said "lingering softness" in the short term, the central bank could opt for a "combination of action". Draghi named QE and rate cuts, but also a strengthening of the forward guidance among the options and at the very least we expect the central bank to change the guidance to signal that rates will be at current or lower levels over the foreseeable future.

    [USD, JPY]
    USD-JPY managed to remain above the five-month low of 107.47 posted in London through the mornings session, bottoming in N.Y. at 107.54 after the early round of U.S. data. The surge in risk taking levels provided a modicum of support, as the S&P 500 and DJIA traded to new all-time highs. Lower Treasury yields however, countered to a degree, with the U.S. 10-year yield dipping under 2.00% for the first time since November 2016 (close basis). Support came at the overnight low, though was breached into the London close, taking USD-JPY to new trend lows of 107.23. The sell-off came as Wall Street gave back about half of early gains.

    [GBP, USD]
    Cable lost upside traction, with the pair easing to 1.2672 from pre-BoE highs of 1.2726. The BoE trimmed its Q2 GDP growth estimate to 0.0% q/q from 0.2% while stating that inflation remains well anchored, although retaining guidance for gradual tightening over the three-year forecast horizon (which assumes a smooth Brexit process). We estimate that the UK currency has been trading with a 10-15% trade-weighted Brexit discount since the vote to leave the EU in June 2016, and don't see much scope of this reversing while the no-deal-Brexit-if-necessary Boris Johnson continues to look the prime minister in waiting.

    [USD, CHF]
    EUR-CHF fell to near two-year lows of 1.1057 following a dovish dovish FOMC on Wednesday, the ramping up of dovish Rhetoric from ECB officials, and dovish tones from the BoJ's Kuroda. In addition,the downing of a U.S. drone by Iran in the Persian Gulf fortified the CHF's safe-haven status. Last week's drop was driven by the Swiss Franc, which rallied in the wake of the SNB policy announcement, with today's events adding further support to the CHF.

    [USD, CAD]
    USD-CAD added to Wednesday's post-Fed losses, plunging to three-plus month lows of 1.3151.The latest move came following sharply higher oil (and gold) prices, the result of Iran's shooting down of a U.S. drone in the Persian Gulf. Plunging U.S. yields and heightened prospects for a Fed rate cut in July have also driven the pairing lower. Next support comes at 1.3130, the March 1 bottom, though intra day short covering later saw the pairing bounce to 1.3220 highs.

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