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By XE Market Analysis April 18, 2018 3:33 am
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    XE Market Analysis: Europe - Apr 18, 2018

    Narrow ranges have mostly prevailed into the London interbank open, with most of the main dollar pairings holding well within their respective ranges from yesterday. This has been seen amid an ongoing recovery rally in global stock markets as trade and geopolitical concerns continued to abate. EUR-USD has held a narrow range in the upper 1.2300s, below the three-week high that was seen yesterday at 1.2414. Cable and AUD-USD have been similarly directionally challenged. USD-JPY has been the biggest mover, rising some 30 pips in making a peak of 107.38, breaching yesterday's peak on route but falling short of Monday's peak by 1 pip.

    [EUR, USD]
    EUR-USD printed a three-week high above 1.2400 yesterday before a sub-forecast German ZEW survey put a lid on euro buying. In the bigger view, EUR-USD remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time.

    [USD, JPY]
    USD-JPY has been the biggest mover, rising some 30 pips in making a peak of 107.38, breaching yesterday's peak on route but falling short of Monday's peak by 1 pip. An ongoing recovery in global stock markets as trade and geopolitical risks abate, for now, has been feeding a softening yen bias as the safe haven premium of the Japanese currency unwinds. USD-JPY has been in a rally phase for some three weeks now, though upside momentum has been coming off notably. Support is at 107.11-12.

    [GBP, USD]
    The pound has consolidated at lower levels after clocking trend highs versus the dollar and euro (21- and 11-month highs, respectively). A miss in wage data, which has been a key metric for the BoE in justifying is guidance for tighter policy, took some of the wind out of the pound's sails. Cable logging a 21-month high at 1.4376 before falling back to the 1.4300 area. We don't think the pay data will derail the central bank's course to hike the repo rate by 25 bp in May with the labour market tight and wages rising more than inflation for the first time in over a year. More top-tier data is due this week, with inflation figures up today, and retail sales figures on Thursday. The UK's upper house will also be debating the Brexit bill on today. We expect March CPI to remain at 2.7% for a second month, above the BoE's 2.0% target. Cable has support at 1.4226-28.

    [USD, CHF]
    EUR-CHF has soared to a new 39-month highs of 1.1975, and USD-CHF has ascended into three-month terrain. A background support for the cross and the pair is the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in an interview over the weekend with La Liberte newspaper that "it is not yet time to change monetary policy," adding that "we do not want to provoke an appreciation of the Swiss franc." Jordan said that the economic situation has improved over the last year, but low inflation (at 0.8% y/y in March) remained, a problem. EUR-CHF has rallied 11% from mid last year. We have a long standing target for the cross to return to the 1.2000 level, which was the SNB's cap that was abandoned back in January 2015 in the face of euro depreciation caused by ECB monetary stimulus.

    [USD, CAD]
    USD-CAD has rebounded back above 1.2580 after posting a two-month low at 1.2517 yesterday. The pair still remains in an overall down trend. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USD-CAD affirms a downside trend that's been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Resistance is at 1.2613-15. The BoC meets on policy today. Our projection remains for no change to the 1.25% rate setting, along with a cautiously constructive growth outlook salted with trade uncertainty. An as-expected outing would maintain the base-case for further gradual rate hikes this year. The BoC will also release the Monetary Policy Report. GDP is on track to undershoot the BoC's 2.5% estimate in Q1 (we see +1.5%), so it will be interesting to see how they view growth prospects for this year and next.

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