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By XE Market Analysis July 15, 2019 4:12 am
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    XE Market Analysis: Europe - Jul 15, 2019

    The Australian Dollar ticked higher following a net encouraging catch of data out of China today. This drove AUD-USD to a 12-day high at 0.7035. The NZD also lifted, with both currencies having China proxy status. The data showed Q2 GDP slowing to a 27-year low of 6.2%, as expected, while industrial output and retail sales numbers beat forecasts, suggesting that the Chinese economy is stabilizing. China's National Bureau of Statistics also said that the impact of government policies will strengthen in the second half of the year. Elsewhere, USD-JPY traded on either side of 108.00 in quiet conditions, with Japanese markets closed for a public holiday today. EUR-USD held a narrow range near the 1.1275 mark, continuing the consolidation of the recovery gains from last Tuesday's four-week low at 1.1193. Fed funds futures are fully discounting a 25 bp Fed rate cut at the upcoming FOMC (July 30-31), and are factoring in a small probability for a 50 bp cut. This week brings U.S. retail sales and industrial production data, which along with the Fed's publication of its latest Beige Book report on anecdotal economic activity, will be scrutinized by markets for indications on how trade tensions might have been impacting the economy.

    [EUR, USD]
    EUR-USD held a narrow range near the 1.1275 mark, continuing the consolidation of the recovery gains from last Tuesday's four-week low at 1.1193. Fed funds futures are fully discounting a 25 bp Fed rate cut at the upcoming FOMC (July 30-31), and are factoring in a small probability for a 50 bp cut. This week brings U.S. retail sales and industrial production data, which along with the Fed's publication of its latest Beige Book report on anecdotal economic activity, will be scrutinized by markets for indications on how trade tensions might have been impacting the economy.

    [USD, JPY]
    USD-JPY traded on either side of 108.00 in quiet conditions, with Japanese markets closed for a public holiday today. The pair has been in a bear trend for some 12 weeks now, declining in the latest week after rising over the prior two weeks. Resistance comes in at 108.45-48. Japan's calendar this week brings the June trade report (Thursday), where a JPY 300.0 bln surplus is expected. The June national CPI (Friday) is forecast to cool to 0.6% y/y from 0.7% overall, and to 0.6% y/y from 0.8% on a core basis. The May all-industry index (Friday) is penciled in at 0.2% m/m from 0.9%.

    [GBP, USD]
    Cable has settled higher after last week printing a 27-month low at 1.2439. We remain neutral-to-bearish with regard to the Pound given the evident impact that prolonged Brexit uncertainty, and increased risk of a on-deal exit from the EU, have been wielding on the UK economy. GBP-USD has support at 1.2510-12.

    [USD, CHF]
    EUR-CHF has put in a couple of weeks of steady, range-bound trading after dropping sharply in mid June as markets adjusted to increased prospects for the ECB to return to the dovish policy tap. The cross printed a two-year low at 1.1057 before recouping to levels around 1.1100. The advance of the Franc against the Euro will be displeasing to the SNB (the EUR-CHF cross being a good proxy on the Swiss currency's trade weighted value). The SNB restated at its quarterly policy review last month that downside risks to the economy have increased, and that the overall policy setting "remains as expansionary as before." The central bank also nudged its inflation forecast lower, now expecting CPI to average just 0.6% y/y this year, 0.7% in 2020, and 1.1% y/y in 2021. With the ECB increasingly under pressure to ease policy again, the SNB remains eager to counter Franc appreciation, especially against the Euro. Assuming the ECB remains on the path of further monetary policy easing, we would expect EUR-CHF retain a declining bias. The SNB's -0.75% deposit rate and threat of tactical intervention hasn't been sufficient to arrest recent appreciation of the Franc.

    [USD, CAD]
    USD-CAD has remained heavy since posting a nine-month low at 1.3022 on Friday, which extended losses from the two-week high seen last Wednesday at 1.3144. The pair has been in a distinct bear trend since late May, declining in five of the last six weeks. Trend resistance comes in at 1.3071-73. The BoC maintained a neutral bias last week as it delivered the widely expected no change in the 1.75% rate setting. Officials did, however, emphasize that the trade and geopolitical backdrops are clouding the outlook. Policy remains data driven. The BoC will "pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation." Canada's data docket this week will provide the latest update on inflation, with June CPI due Wednesday. We expect CPI to pull-back 0.4% in June (m/m, nsa) after the 0.4% gain in May, as gasoline prices were sharply lower during the month. CPI on an annual comparable basis (y/y) is projected to slow to a 1.8% growth rate from the 2.4% clip in May. The BoC expects CPI to slow in Q3 as the temporary factors boosting CPI in Q2 unwind.

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