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By XE Market Analysis May 18, 2018 3:08 pm
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    XE Market Analysis: Asia - May 18, 2018

    The USD index (DXY) clocked a new five-month high, at 93.83, aided by a post-data surge in USD-CAD and continued buoyancy in USD-JPY, which earlier posted a four-month high at 111.08. Weaker than expected inflation data out of Japan has been underpinning the dollar against the yen. EUR-USD, meanwhile, has edged out a fresh five-month low, surpassing Wednesday's low by 2 pips in making 1.1761, in part amid a wary euro sentiment as Italy's anti-establishment populist parties form a government. Softer U.S. yields, after the 10-year note saw a new seven-year high, haven't stopped dollar buying. We remain generally bullish of the dollar, particularly against the euro and yen.

    [EUR, USD]
    EUR-USD posted a new five-month low at 1.1749, since turning above 1.1790 but closing out in London below Thursday's closing levels at 1.1793-95 and near the lows for the week. This would maintain the Dow Theory's definition of a bear trend, of sequential lower lows and lower highs, and lower opens and lower closes, which works on both daily and weekly charts for EUR-USD presently. This will be the fifth consecutive weekly decline, and while some momentum indicators are flashing "oversold" warnings (highlighting that the current duration and extent of the bear trend is anomalous relative to historic price trends), the fundamental driver of a rising U.S. yield advantage relative to Bunds, coupled with concerns about government policy in Italy, look likely to remain in play.

    [USD, JPY]
    USD-JPY topped at new four-month highs of 111.08 into the N.Y. open, though has since fallen back to 110.61 lows on pre-weekend profit taking. This week marks the eight consecutive week of gains, which has seen the pairing rise from late March lows of 104.56. Today's support for the pairing started in Tokyo, as a dip in Japanese inflation data weighed on the yen. Headline April CPI fell to a rate of 0.6% y/y from 1.1% y/y in March, while core CPI ebbed to 0.7% y/y from 0.9% y/y. The outcomes undershot market expectations, and should maintain the BoJ's ultra-accommodative monetary policy.

    [GBP, USD]
    Cable has ebbed south of the 1.3500 level in London morning trade, remaining heavy after yesterday reversing out of a run higher above 1.3560 after the UK government dismissed a report that it was of a mind for Britain to remain in the EU customs union. Cable touched 1.3455 lows in N.Y. We retain a bearish view of Cable, partly on Brexit-related uncertainties, which has proved to be detrimental to business investment, and on the view that the Fed is likely to remain on a relatively hawkish policy path compared to the BoE for some time to come.

    [USD, CHF]
    EUR-CHF slid to near two-month lows of 1.1730 on Friday in synchrony with EUR-USD's five-month low at 1.1750 Declines this week marked the biggest intra-week decline since early January, interrupting a bull trend that's been in development since mid last year. Given that EUR-CHF is a good proxy of the Swiss franc's trade weighted value, and given Swiss policymakers view of the currency has still being overvalued, the latest price action won't been pleasing to the SNB, which can be expected to remain fully committed to its prevailing NIR policy.

    [USD, CAD]
    USD-CAD rallied on the CPI miss out of Canada, which saw the y/y rate undershoot expectations at 2.2% y/y. The median forecast had been for a 2.3% y/y outcome. The markets looks to have overlooked the 0.6% gain in March retail sales, although double the median forecast. USD-CAD climbed above 1.2910, up over 100 pips from pre-data levels.

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