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By XE Market Analysis April 20, 2018 3:06 am
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    XE Market Analysis: Europe - Apr 20, 2018

    The dollar has been trading firmer so far today, while weakness in the yen and sterling have remained themes. The dollar bloc currencies have also seen particular weakness, concomitantly with corrections in commodity prices and global stock markets. EUR-USD, meanwhile, has flat-lined in the mid 1.2300s, remaining comfortably off the three-week high posted on Tuesday at 1.2414 and comfortably above the week's low at 1.2324. USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. The move reflected dollar firmness as EUR-JPY and other yen crosses traded flat or modestly lower. In data today, Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y, which underscores the recent and ongoing concerns about chronically below-target inflation of Japanese policymakers. Sterling extended losses generated this week by a triple set of sub-forecast top-tier data releases. Cable is down for a fourth consecutive day, this time logging a two-week low at 1.4055, while EUR-GBP is up for a fourth consecutive day, logging a three-week high at 0.8778. As for the dollar bloc, AUD-USD logged an 11-day low at 0.7705, and USD-CAD a 10-day high at 1.2676.

    [EUR, USD]
    EUR-USD has flat-lined in the mid 1.2300s, remaining comfortably off the three-week high posted on Tuesday at 1.2414 and comfortably above the week's low at 1.2324. Eurozone March HICP data this week showed a downward revision to 1.3% y/y from 1.4% y/y, and this, along with a sub-forecast German ZEW survey, put a lid on euro buying as the data further developed an economic-slowing theme in the Eurozone economy. 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. Near-term risks look to be skewed to the downside. Initial support is at 1.2325-26.

    [USD, JPY]
    USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. The move reflected dollar firmness as EUR-JPY and other yen crosses traded flat or modestly lower. In data today, Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y, which underscores the recent, and ongoing, concerns about chronically below-target inflation of Japanese policymakers. The April Tankan survey of business confidence saw the index for large manufacturers decline to a reading of +21 from +28 in March, which is the third consecutive month of deterioration and the lowest reading for this measure since February 2017. The rise in trade tensions got the blame for the worsening in confidence. The non-manufacturers index came in at +36 from +35. USD-JPY has been in a rally phase for some three weeks now. Support is at 107.30-32. We look for a breach of last week's two-month high at 107.78 to reaffirm the developing trend.

    [GBP, USD]
    Sterling has traded lower this week following a triple set of sub-forecast top-tier data releases. Cable is down for a fourth consecutive day, this time logging a two-week low at 1.4055, while EUR-GBP is up for a fourth consecutive day, logging a three-week high at 0.8778. Weaker than expected average wage data, an unexpected CPI dip to a one-year low rate of 2.5% y/y in March, with Q1 inflation undershooting the BoE projection, and an underwhelming retail sales report, have collectively weighed on both the pound and UK yields. Reuters reported that most of its survey respondents still expect, even in light of the inflation data, that the BoE will hike the repo rate by 25 bp in May, but with many now expecting that the central bank to accompany such a move by adjusting its forward guidance to a more neutral plane. We concur with this view, with second-round inflationary pressures proving more muted than expected and in light of currency gains over the last several months, which has been slackening the pressure on UK import prices. Cable has been trending higher for a year, and presently looks to be in the early phase of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Resistance is at 1.4145.

    [USD, CHF]
    EUR-CHF has symbolically posted a high above 1.2000 -- symbolic as this is the first time the cross has traded above the SNB's former trading floor (or franc cap), which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied, and the cross is now over 12.5% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with 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 Bloomberg interview last night that the franc's declines are in the "right direction" and that the SNB remains "convinced that current monetary policy is still necessary." He had said earlier in the week that "we do not want to provoke an appreciation of the Swiss franc."

    [USD, CAD]
    USD-CAD rebounded to a 10-day high of 1.2676, building on a recovery from Wednesday's two-month low at 1.2527. A correction in oil prices, which have descended to back near the $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of the BoC's mid-week policy meeting, where the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD suggests a weakening in the downside trend that's been developing over the last three weeks, from levels near 1.3100. Resistance is at 1.2700.

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