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By XE Market Analysis April 27, 2018 2:43 am
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    XE Market Analysis: Europe - Apr 27, 2018

    The dollar majors were sitting at near net unchanged levels heading into the London interbank open today. EUR-USD late yesterday traded below 1.2100 for the first time in early January, extending the latest phase of losses which were seen in the wake of the dovish-tilting guidance of ECB President Draghi yesterday, following the central bank's April policy review. Recent EUR-USD losses have been driven mostly by dollar outperformance, underpinned by the mix of looser U.S. fiscal policy and Fed tightening, though the comparatively less hawkish/dovish stance of the ECB has been one of the bearish fundamental pillars. USD-JPY has remained buoyant but below the 11-week high that was seen yesterday at 109.46. The BoJ left policy on hold at its policy review today, but it removed the timeframe to achieve CPI target following its policy review today. AUD-USD punched out a new four-month low at 0.7538. Data showing Chinese industrial profits at a 21-month low weighted on the Aussie.

    [EUR, USD]
    EUR-USD traded below 1.2100 for the first time in early January in the wake of the dovish-tilting guidance by ECB President Draghi yesterday, following the central bank's April policy review. Recent EUR-USD losses have been driven mostly by dollar outperformance, underpinned by the mix of looser U.S. fiscal policy and Fed tightening, though the comparatively less hawkish/dovish stance of the ECB has been one of the bearish fundamental pillars. EUR-USD' breach and daily close below 1.2154, which had marked the low point of a broadly sideways range that was in play for nearly three months, confirms an evolving bearish trend, which we advise following. Resistance is at 1.2145-50.

    [USD, JPY]
    USD-JPY has remained buoyant but below the 11-week high that was seen yesterday at 109.46. The BoJ left policy on hold at its policy review today, but it removed the timeframe to achieve CPI target following its policy review today. The central bank left short-term interest rates at -0.1% and maintained "yield curve control" that targets 10-year JGB yields at 0%. The outcome had been widely anticipated. The BoJ left its inflation forecast for next fiscal year unchanged at 1.8%. What wasn't expected was that the BoJ's removal from its guidance of a phrase on the timing for achieving its price target. The latest projection made in January that the price goal will be achieved during fiscal 2019, but this was now absent. The quarterly report noted that "Japan's economy is expected to continue expanding moderately," and that while momentum for achieving the price target has been maintained, it "lacks steam." Japanese Q4 GDP rose 1.6%, completing eight consecutive quarters of growth, but core CPI was 0.9%, well below the 2% target. The BoJ's policy maintains one of the fundamental pillars underpinning USD-JPY by maintaining the pegging of the 10-year JGB yield to near 0.0%. The other pillar has been the rise in U.S. Treasury yields. This is a theme that has been true for over the last month during which time geopolitical risks and trade war concerns have abated sufficiently to allow the yen's safe haven premium to unwind. We have been advising following the trend. USD-JPY support comes in at 108.88-90.

    [GBP, USD]
    Sterling has been trading softer versus the dollar but firmer against the euro. We anticipate that Cable will trade steady-to-lower into the May 10th BoE monetary policy decision, when the central bank will also be publishing its latest quarterly inflation report, with updated inflation and growth forecasts, where we expect a downward nudge in the CPI prognosis. After a run of sub-forecast key UK data (specifically retail sales, wages and inflation), along with BoE Governor Carney's less-than-hawkish remarks of last Thursday, sterling markets have settled to pricing in a 40% probability for a May hike, down from 65% before Carney's interjection (according to Reuters calculations). Yesterday's April CBI retail sales survey marched the median forecast, but was still seen as disappointing for many has it showed a lack of bounce following weather-related weakness in the sector in the previous month.

    [USD, CHF]
    EUR-CHF has entered a consolidative phase after making a 39-month last Friday at 1.2005. The cross ebbed to a seven-session low at 1.1926 this week before finding a footing, subsequently rebounding to the upper 1.1900s. The franc's return to the 1.2000 level was 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. EUR-CHF is some 12% higher from the levels of mid last year. The franc was 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 has remained buoyant, posting a three-week high of 1.2897 on Wednesday. The move extended a rebound from last week's two-month low at 1.2527. A correction in oil prices, which have descended back under $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 and associated rise in U.S. Treasury yields, 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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