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By XE Market Analysis April 11, 2019 3:37 am
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    XE Market Analysis: Europe - Apr 11, 2019

    The forex markets have been lacking a directional theme so far today. EUR-USD has been plying a narrow range in the upper 1.1200s, holding below yesterday's 12-day high at 1.1287. USD-JPY has settled near 111.0, above the 12-day low of yesterday, at 110.84. The Pound has settled lower after rallying late yesterday on news that the EU agreed to delay Brexit again. Cable pulled back under 1.3100 after leaving a high at 1.3120. The EU permitted a flexible Brexit delay, limited to October 31. The UK must hold elections for the European parliament on May 23 or else leave on June 1 without a deal, while the UK would be able to leave the EU ahead of the October deadline should a deal be ratified. Brussels re-stated, for the umpteenth time, that the Withdrawal Agreement would not be reopened for renegotiation. The risk is apparent to most who have been following the Brexit process to far; that the delay won't fix the political gridlock and we simply arrive at October 31 -- already being dubbed the Halloween deadline in the UK media -- in the same state as now, without a solution. This backdrop will likely leave the Pound, which we estimate is still trading with a 10-11% Brexit discount, on a neutral directional footing for now. Elsewhere, the Australian Dollar, which has been a recent outperformer, came under modest pressure after the Australian prime minister called a national election for May 18. In equity markets, Asia bourses flagged as investors mull signs of slowing global growth on the one hand versus accommodative central banks on the other.

    [EUR, USD]
    EUR-USD has been plying a narrow range in the upper 1.1200s, holding below yesterday's 12-day high at 1.1287. The pair dove by some 50 pips yesterday following downbeat remarks by ECB President Draghi following his post-policy meeting press conference. March U.S. CPI data were also a factor, which revealed a perky headline figure, though the Dollar soon retraced lower as markets digested that still-benign core CPI reading, which lifted EUR-USD back into the upper 1.1200s. The Fed has pinned dovish turn this in large part on an outlook for soft inflation, hence the Dollar's volatility in the wake of the release. Overall, the pairing is lacking strong directional impulse. In the bigger picture, EUR-USD is in a bear trend, which has been unfolding since February last year, although downside momentum has abated notably in recent months. Support comes in at 1.1228-30, and resistance at 1.1297-1.1300.

    [USD, JPY]
    USD-JPY has settled near 111.0, above the 12-day low of yesterday, at 110.84. In equity markets, Asia bourses flagged as investors mull signs of slowing global growth on the one hand versus accommodative central banks on the other. 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. Expectations for a contraction in Q1 corporate earnings in the U.S. are also in the mix. This backdrop should be conducive of Yen outperformance relative to the other major currencies. USD-JPY has support at 110.84-88.

    [GBP, USD]
    The Pound has settled lower after rallying late yesterday on news that the EU agreed to delay Brexit again. Cable pulled back under 1.3100 after leaving a high at 1.3120. The EU permitted a flexible Brexit delay, limited to October 31. The UK must hold elections for the European parliament on May 23 or else leave on June 1 without a deal, while the UK would be able to leave the EU ahead of the October deadline should a deal be ratified. Brussels re-stated, for the umpteenth time, that the Withdrawal Agreement would not be reopened for renegotiation. The risk is apparent to most who have been following the Brexit process to far; that the delay won't fix the political gridlock and we simply arrive at October 31 -- already being dubbed the Halloween deadline in the UK media -- in the same state as now, without a solution. This backdrop will likely leave the Pound, which we estimate is still trading with a 10-11% Brexit discount, on a neutral directional footing for now.

    [USD, CHF]
    EUR-CHF has rallied to a three-week high at 1.1307, 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 settled in the mid 1.3300s after rotating lower over the previous couple of days, concomitantly with new trend highs in oil prices. WTI crude prices on Tuesday printed a five-month high at $64.79, since consolidating. 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 a 19-day low at 1.3284 on Tuesday. We expect the directional bias will remain to the downside. Resistance comes in at 1.3364-67.

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