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By XE Market Analysis July 4, 2018 3:04 am
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    XE Market Analysis: Europe - Jul 04, 2018

    The dollar traded softer, led be declines against the yen, Australian dollar and most emerging world economies, which seemed to benefit from China's steadying of the yuan today. USD-JPY opened in Asia at about 110.58-60, then dipped to a four-session low of 110.27 before setting around 110.40. Stock markets in Asia mostly declined, which follows a tech-led drop on Wall Street yesterday. China's yuan steadied after declining notably last week, and on Monday and Tuesday, amid reports that it was at the direction of Beijing. Most emerging market currencies also gained. AUD-USD posted a seven-session high at 0.7424. A record high reading in the Australian June services PMI, which jumped 4 points to 63.0, gave the Aussie a bid, along with the firming in the yuan. EUR-USD, meanwhile, clawed out a two-session high of 1.1678. Conditions will be thin and direction commitment limited today with U.S. markets closed for the 4th of July holiday.

    [EUR, USD]
    EUR-USD clawed out a two-session high of 1.1678. The pair is back over a big figure from last week's lows, having been underpinned by EU members agreeing deal on immigration (to shore up external borders and create screening centres for migrants). This reduced the discount built into the euro on existential-threat grounds, as the deal should placate the Italian populist government and broader Eurosceptic, populist movements across the region. Bigger picture, the EUR-USD remains in broadly consolidative phase after a downtrend from mid-April levels above 1.2400. The range over this phase has been 1.1508 to 1.1851. More of the same looks likely for now.

    [USD, JPY]
    USD-JPY has traded softer, opening in Asia at about 110.58-60, dipping to a four-session low of 110.27 before setting around 110.40. The dip reflects broader dollar weakness on this occasion, rather than specific yen outperformance. AUD-JPY traded higher, and EUR-JPY near flat. Stock markets in Asia mostly declined, which follows a tech-led drop on Wall Street yesterday. China's yuan steadied after declining notably last week, and on Monday and Tuesday. There were reports that Beijing intervened. Most emerging market currencies also gained. In the bigger picture, USD-JPY remains in a broadly choppy, sideways range, which has been unfolding over the last couple of months. More of the same looks likely, with bullish fundamentals (Fed versus BoJ policy paths) being offset by the risks stemming from a deepening and prolonging trade way among major economies, a backdrop that has the Japanese currency in demand as a safe haven.

    [GBP, USD]
    Cable posted a seven-session high at 1.3226. This extended the recovery from last week's seven-month low at 1.3050, returning the pair toward the upper part of the range that's developed over the last two weeks. We remain somewhere between bearish and neutral of sterling at prevailing levels. The Brexit negotiation process, which has just six negotiating weeks left, is coming to a head amid a sense that risk of the UK leaving the EU without a new trade-deal having gone from highly unlikely to possible. The UK's June services PMI will be released today, where we expect the headline reading to hold unchanged, at 54.0 (which also matches the median forecast). In-line data should keep the BoE on its gradualist tightening course, with markets looking for a 25 bp hike in the repo rate at the August MPC meeting.

    [USD, CHF]
    EUR-CHF has become entrenched in the mid 1.1500s. SNB's Maechler said late last month that the franc "remains highly valued" despite the depreciation seen over the last year, arguing that "we are in extraordinary times and we are using unconventional measures. The comments affirm that the SNB is firmly on hold, with Maechler admitting that the SNB's monetary policy room for manoeuvre is "necessarily" affected by the actions of ECB and Fed.

    [USD, CAD]
    USD-CAD posted a three-week low of 1.3111, extending from a one-year high that was pegged at 1.3387 last Wednesday. Expectations for the BoC to hike rates next week along with the big surge in oil prices have buoyed-up the Canadian dollar. USD-CAD has resistance 1.3210-11.

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