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By XE Market Analysis April 23, 2018 3:39 am
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    XE Market Analysis: Europe - Apr 23, 2018

    The dollar has maintained a steady-to-firmer bias in early-week trading, making fresh highs versus the yen, although holding below respective Friday highs against the euro and other currencies. EUR-USD drifted moderately lower from Friday's closing levels, making a 1.2265 low before steadying, leaving Friday's 17-day low at 1.2229 unchallenged. USD-JPY edged out a fresh two-month high of 107.88, which is the culmination of a five consecutive day run higher, and a rally that's been developing since late March, from levels around 104.60-70. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. A USD-JPY supportive yield differential theme is also in the mix, with U.S. Treasury yields near four-year highs as the BoJ continues to peg JGB 10-year yields near 0.0%. The Nikkei 225 closed 0.33% lower after posting a relatively narrow trading range. In data, Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior.

    [EUR, USD]
    EUR-USD drifted moderately lower from Friday's closing levels, making a 1.2265 low before steadying, leaving Friday's 17-day low at 1.2229 unchallenged. Softer Eurozone inflation and ZEW survey data last week helped develop the Eurozone economic-slowing theme. 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 edged out a fresh two-month high of 107.88, which is the culmination of a five consecutive day run higher, and also a rally that's been developing since late March, from levels around 104.60-70. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. A USD-JPY supportive yield differential theme is also in the mix, with U.S. Treasury yields near four-year highs as the BoJ continues to peg JGB 10-year yields near 0.0%. The Nikkei 225 closed 0.33% lower after posting a relatively narrow trading range. In data, Japan's preliminary estimate for the April manufacturing PMI came in at 53.3 after 53.1 in the month prior. We counsel following the trend in USD-JPY for now. Support comes in at 107.50-51.

    [GBP, USD]
    The pound on Friday posted its fourth consecutive down day, printing a 17-day low at 1.3992 before finding a footing. That extended the correction from the 21-month high that was seen on Tuesday at 1.4376. BoE Governor Carney threw a cat among the hawks, damping what had been a near universal expectation for the central bank to deliver a 25 bp hike in the repo rate on May 10th. He said that while there will be "a few interest rate rises over the next few years," he didn't want "to get too focused on timing." In contrast to Carney, Saunders, one of the Monetary Policy Committee's two dissenters in favour of hiking rates at the March policy meeting, stuck to his relatively hawkish guns in remarks on Friday. With second-round inflationary pressures proving more muted than expected, and in light of currency gains over the last several months (slackening the pressure on UK import prices), we expect the BoE to at least trim its inflation projections while toning down hawkish guidance at its MPC meeting on May 9th-10th, even if still chooses to hike. Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Resistance is at 1.4090-91.

    [USD, CHF]
    EUR-CHF has ebbed a little lower after clocking a fresh 39-month high at 1.2005 on Friday, since settling in the upper 1.1900s. The Swiss franc's return to the 1.2000 level is a symbolic "normalisation" that's been afoot in global markets, being the first time the currency has traded below the SNB's former trading 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% 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 Thursday 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 clocked in a fresh two-week high at 1.2771 during the early Asian session today, extending a rebound from a two-month low at 1.2527, which was seen last Wednesday. A correction in oil prices, which have descended to back near $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 last Wednesday's BoC policy meeting, as 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 has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.

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