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By XE Market Analysis April 26, 2019 3:26 am
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    XE Market Analysis: Europe - Apr 26, 2019

    The Dollar majors have been plying narrow ranges so far today, with both the Dollar and Yen consolidating of their respective gains seen against most other currencies this week. The U.S. currency has been buoyed by relatively good data, including yesterday's much stronger than expected 2.7% rise in durable orders data, and with markets expecting a solid advance Q1 GDP reading later today out of the U.S., which is set to show developed-world beating growth. We expect growth of 2.6% y/y, up from 2.2% in Q4. The Yen, meanwhile, has been underpinned by safe haven demand amid growth concerns in Asia and European and flagging stock markets. The biggest movers over the last week out of the dollar pairings and associated cross rates that we keep taps on are AUD-USD and AUD-JPY, which are showing respective losses of 1.8% and 2.0%. EUR-USD and EUR-JPY are showing respective declines of 1% and 1.2%. We expect this theme to continue for now. Japanese markets will be closed next week of for golden week holiday period.

    [EUR, USD]
    EUR-USD has declined by 1% over the last week, and EUR-JPY by a little more. The movement has been mostly driven by respective Dollar and Yen outperformance, though the Euro itself has concurrently come under pressure versus the Pound and Swiss Franc, among other currencies following run of underwhelming data, including German Ifo sentiment and French business confidence data this week, and last week's preliminary Eurozone April PMI surveys. EUR-USD breached major trend lows seen in March and early April at 1.1176 and 1.1183 on route to printing, yesterday, a 22-month low at 1.1118. The dollar has been benefitting from relatively strong data releases out of the U.S. in recent sessions, along with record highs on Wall Street. A favourable yield differential dynamic should keep EUR-USD directionally biased to the downside for now. EUR-USD is down by nearly 3% on the year-to-date. The pairing has been in a bear trend that's been unfolding since early 2018. Trend support comes in at 1.1108-10.

    [USD, JPY]
    USD-JPY has posted a modest decline over the last week, when the Japanese currency has outperformed most other currencies, showing a gain of over 2% versus the Australian Dollar and a over a 1% advance on the Euro. Safe haven demand has underpinned the currency, with stock markets in Asia having sputtered this week following signals from China that the pace of stimulus measures will be dialled down. Japanese production data today disappointed, with South Korea Q1 GDP data, seen as a bellwether indicator of global growth, also disappointed this week. The BoJ, meanwhile, left rates unchanged yesterday, as had been widely expected. The central bank affirmed it will keep rates accommodative at least through to the spring of next year, refraining from committing to further stimulus while signalling that further measures could be deployed if necessary. USD-JPY has support at 111.37-40.

    [GBP, USD]
    Cable declined yesterday for what was a seventh consecutive trading day, printing a new two-month low at 1.2866 before finding a toehold. GBP-JPY also printed one-month lows, though the UK currency held up better against the euro and most other currencies. The reprieve from Brexit anxieties continues. Parliament only on Tuesday returned from its two-week Easter recess, while Andrea Leadsom, the leader of the House of Commons, just announced the business schedule for next week without including a new Brexit vote. Focus will remain on talks between the government and the principal opposition, Labour, on forming a workable Brexit compromise. The looming European parliament elections on May 23, meanwhile, is turning into a high profile political campaign in the UK between a remain-in-the-EU alliance versus the newly established Brexit Party, which will be a litmus test on current public support for Brexit. For now, we expect the pound to continue to trade relatively neutrally on net.

    [USD, CHF]
    EUR-CHF's rally, in its fourth week, finally broke this week. The cross dove sharply from the mid 1.1400s to the mid 1.1300s. A 10-day low was printed at 1.1351. The catalyst was EUR-USD, which down to 22-month lows under 1.1200 following disappointing German Ifo sentiment and French business confidence data, which following last week's release of underwhelming preliminary April PMI survey data out of the Eurozone. EUR-CHF left a trend high at 1.1476, which is loftiest level seen since early November. The pronounced Swiss Franc underperformance over the last month had been accompanied by narratives talking about the market being in process of giving up on the Franc's role as a safe haven currency, which has been afflicted by the SNB's -0.75% deposit rate, and which finally seemed to elicit down-weighting of Franc by reserve and portfolio overlay managers. On the year-to-date, the Swissie is down by nearly 4% against the Dollar and by 1.2% versus the Euro. Overall, Swiss policymakers' efforts to both weaken the franc and dethrone the currency from its safe-haven status look to be working.

    [USD, CAD]
    USD-CAD has settled to a consolidation after rallying strong during mid week, with the pair printing a four-month high at 1.3521. The BoC was catalyst. The central left policy rates unchanged, as had been widely anticipated, but accompanied the decision with dovish-leaning guidance, removing any hint of a tightening bias. Favourable yield differentials have underpinned, while a pullback in oil prices from six-month highs has also be conducive of Canadian Dollar selling. The recent flow of data out of Canada has eliminated the previously slim chance of a rate cut this year., while recent data out of the U.S. have been on the perky side of expectations. Our projection remains for the BoC to hike rates in late in 2020. USD-CAD has support at 1.3450-55.

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