Home > XE Currency Blog > XE Market Analysis: Europe - Jul 17, 2018

AD

XE Currency Blog

Topics5566 Posts5611
By XE Market Analysis July 17, 2018 2:49 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3748
    XE Market Analysis: Europe - Jul 17, 2018

    The Dollar majors have been holding narrow ranges for the most part, with EUR-USD, USD-JPY, Cable, AUD-USD, and other pairings, showing respective net changes of less than 0.2% on the day so far. EUR-USD has been making time in the lower 1.1700s, and USD-JPY in the lower 112.00s, after edging out a two-session high of 112.57. Sterling has held up after the UK government scrapped through four parliamentary votes on its Customs Bill late yesterday, which was seen as a litmus test of the so-called Chequers plan (the Cabinet rubber-stamped plan laying out what it wants out of Brexit). The is another parliamentary vote today. While some hardline Brexiteers MPs are agitating for a no confidence vote in the prime minister, so far they are reported to lack sufficient support, and Boris Johnson, the Brexiteer with the most political weight, has remained on the side lines. Sterling market participants will be watching developments closely. The NZ Dollar rallied on the back of perky inflation data, with New Zealand core CPI lifting to a seven-year high rate of 1.7% y/y. NZD-USD rallied over 0.5% to a five-session peak of 0.6840.

    [EUR, USD]
    EUR-USD lifted to four-session highs above 1.1720, with gains once again being driven by broader selling of dollars. Despite the gains, we still retain an overall bearish view of EUR-USD based on strong U.S. economic growth and the Fed's tightening course, while any move from Trump to follow-through on hits threats to tariff car imports -- which he looks to be gearing up for, describing the EU as a "foe" over the weekend -- would presumably be negative for the Euro relative to the Dollar. ECB's Weidmann reportedly said that the risks to the German economic outlook have been rising. EUR-USD has support at 1.1695-1.1700.

    [USD, JPY]
    USD-JPY settled in the in the lower 112.00s after edging out a two-session high of 112.57. The Yen has weakened against most other currencies, tracking broader dollar declines. EUR-JPY, for instance, has lifted to fresh two-and-a-half-month highs. Japanese markets reopened today after yesterday's holiday, and the Nikkei 225 closed with a 0.44% gain. A report from last Friday that the BoJ will likely cut its long-term inflation projections, according to unnamed sources cited by Reuters, has continued to resonate. The sources suggested that the BoJ will concede that CPI will likely remain below the 2% target for as long as three more years, highlighting structural factors that are capping inflationary price pressures. The BoJ meets on policy on July 30-31, when a quarterly revision of inflation and growth forecasts will also be published. This story reaffirms the underlying bullish credentials for USD-JPY, though the risk from trade wars has been maintaining a safe haven premium in the yen. USD-JPY has support at 111.70-71, resistance at 113.38-40.

    [GBP, USD]
    The Pound has been trading mixed today. Data this week will be make-of-break as far as the prospect for a BoE rate hike at the August MPC meeting is concerned -- which include average wage data (Tuesday), inflation figures (Wednesday) and retail sales (Thursday) -- especially with the Brexit-negotiation issue looking to be coming to a disorderly head. The BoE has long caveated that its economic projections are contingent on Brexit going smoothly. Data in-line with expectations probably would not be a shoo-in for the BoE to hike the repo rate by 25 bp on August 2. BoE Deputy Governor Cunliffe said on Friday that that interest rates should have a "stodgy" response to signs of economic recovery, suggesting that dovish members may not by ready to turn hawkish in time for the August 1-2 meeting. The OIS market is showing about a 70% probability for a 25 bp rate hike in August. We would look for signs of perkiness in wage and/or inflation data to cement our call for a August hike. We retain a wary weather eye on sterling due to the fraught Brexit issue. The UK government scrapped through four parliamentary votes on its Customs Bill late yesterday, which was seen as a litmus test of the so-called Chequers plan (the Cabinet rubber-stamped plan laying out what it wants out of Brexit). The is another parliamentary vote today. While some hardline Brexiteers MPs are agitating for a no confidence vote in the prime minister, so far they are reported to lack sufficient support, and Boris Johnson, the Brexiteer with the most political weight, has remained on the side lines. Sterling market participants will be watching developments closely.

    [USD, CHF]
    EUR-CHF has settled back under 1.1700, leaving yesterday's eight-week high at 1.1714. 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 commáents 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 has ebbed to a four-session low of 1.3110, driven lower by general weakness in the U.S. Dollar, and despite the sharp retreat in oil prices yesterday and in recent sessions. The BoC hiked interest rates by 25 bp last Wednesday, and guided markets for tighter monetary policy to keep inflation near target met expectations, though the statement emphasized a "gradual approach, guided by data." USD-CAD has support at 1.3087-90, which encompasses the current position of the 50-day moving average, and resistance at 1.3146-68.

    Paste link in email or IM