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By XE Market Analysis April 10, 2019 3:36 am
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    XE Market Analysis: Europe - Apr 10, 2019

    Forex markets have remained directionally unambitious. AUD-USD has been the main exception, with the pairing lifting by about 40 pips to within a whisker of the three-week seen yesterday at 0.7152. The move was sparked by remarks from RBA's Debelle, who was upbeat about the labour market. Elsewhere, EUR-USD settled in the mid 1.1200s, down from the two-week high seen yesterday at 1.1284. Cable held steady near 1.3050 while USD-JPY hunkered down in a narrow range in the lower 111.0s, above the nine-day low seen yesterday at 110.98. USD-JPY has been downwardly biased since capping out at a four-week high last Friday at 111.82 concurrently with a fresh sputtering in global equity markets as high valuations look increasingly incongruous with slowing global economic growth. Data showing job openings falling to an 11-month low in the U.S. economy played to these concerns, while President Trump threatened to slap tariffs on $11 bin worth of EU goods. The tariff threat is small compared to the U.S. versus China standoff, but nevertheless adds weight on the bearish side of the scales. Expectations for a contraction in Q1 corporate earnings in the U.S. are also in the mix. Focus today will fall on the EU emergency Brexit summit, where UK Prime Minister will be beseeching leaders for a further extension in Brexit. It's become understood that her hopes for an extension to June 30 will not be granted, while a EU diplomat cited by the Guardian reported that two dates firming as possibility are December this year or March 2020 with conditions attached to limit the risk of UK undermining the bloc. Market participants are also looking to today's release of U.S. CPI data for March given the Fed's dovish-turn has been hinged on a benign inflation outlook.

    [EUR, USD]
    EUR-USD settled in the mid 1.1200s, down from the two-week high seen yesterday at 1.1284. The high extended the rebound from the 1.1210 low seen in the wake of the U.S. jobs report last Friday, which revealed a blend of strong payrolls but tepid earnings growth, which supported Wall Street but pressured Treasury yields, and which in turn has kept a lid on the dollar. Market participants are now looking to today's release of U.S. March CPI data given that the Fed's recent dovish turn has been largely hinged on a benign outlook for inflation. We are expecting headline CPI to rise 0.4% m/m in March, after a 0.2% reading in February, and to 1.9% y/y, up from 1.5% in the month prior, though we anticipate core CPI to remained unchanged at 2.1% y/y. Our forecasts match the respective median expectations. EUR-USD resistance at 1.1282-85 was tested yesterday, but held. In the bigger picture, we class EUR-USD as remaining in a bearish trend, which has been unfolding since February last year.

    [USD, JPY]
    USD-JPY has settled in a narrow range in the lower 111.0s, above the nine-day low seen yesterday at 110.98. The pair has been downwardly biased since capping out at a four-week high last Friday at 111.82. We expect the bias to remain to the downside, with global equity markets sputtering once again as high valuations look increasingly incongruous with slowing global economic growth. Data showing job openings falling to an 11-month low in the U.S. economy played to these concerns, while President Trump threatened to slap tariffs on $11 bin worth of EU goods. The tariff threat is small compared to the U.S. versus China standoff, but nevertheless adds weight on the bearish side of the scales. Expectations for a contraction in Q1 corporate earnings in the U.S. are also in the mix. Focus today will fall on the EU leaders' emergency Brexit summit, where UK Prime Minister will be beseeching leaders for a further extension in Brexit. It's become understood that her hopes for an extension to June 30 will not be granted, while a EU diplomat cited by the Guardian reported that two dates firming as possibility are December this year or March 2020 with conditions attached to limit the risk of UK undermining the bloc. Market participants are also looking to tomorrow's release of U.S. CPI data for March given the Fed's dovish-turn has been hinged on a benign inflation outlook. We expect USD-JPY to continue with a downside bias for now. Support comes in at 110.88-95.

    [GBP, USD]
    Cable has held steady near 1.3050. Focus today will fall on the EU emergency Brexit summit, where UK Prime Minister will be beseeching leaders for a further extension in Brexit. It's become understood that her hopes for an extension to June 30 will not be granted, while a EU diplomat cited by the Guardian reported that two dates firming as possibility are December this year or March 2020 -- with conditions attached to limit the risk of the UK undermining the bloc. In the event that the EU refuses to grant an extension, which most pundits view as unlikely, this would ratchet up the risk of the UK leaving the EU on Friday without a deal. The UK could still, in this scenario, unilaterally revoke Article 50 to cancel Brexit, which, if the government did, would likely be done with the promise to hold a new referendum on EU membership. The stability of the Pound suggests that financial markets are sanguine to the risk of a no-deal Brexit scenario.

    [USD, CHF]
    EUR-CHF rallied to a 17-day high yesterday at 1.1280, extending the rebound from the eight-month low seen in late March at 1.1162. The rotation higher has tracked gains in EUR-USD. SNB member Maechler said last week that while the Swiss economy remains dynamic and the global economy should remain solid, inflation pressures remain very weak and the environment is fragile, which continues to warrant expansionary monetary policy. The EUR-CHF cross has been seeing choppy directional impulses since the start of the year, often times characterized by bouts of pronounced underperformance in the Swiss franc that have often been accompanied by talk/suspicions of SNB intervention.

    [USD, CAD]
    USD-CAD has rotated lower over the last couple of days concomitantly with new trend highs in oil prices. WTI crude prices yesterday printed a five-month high at $64.79. Military tension in Libya have been the latest bullish catalyst, which comes amid a backdrop fo OPEC supply curtailment and U.S. sanctions against Venezuelan and Iranian crude exports. WTI benchmark oil prices are now up by over 40% on the year-to-date, which, if sustained, will be a notable benefit to Canada's terms of trade. USD-CAD printed an 18-day low at 1.3284 yesterday, and has since settled in the lower 1.3300s. More of the same looks likely. Resistance comes in at 1.3335-38.

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