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By XE Market Analysis June 6, 2017 3:34 am
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    XE Market Analysis: Europe - Jun 06, 2017

    The dollar remained on a softening track, with the narrow USD index clocking a fresh seven-month low at 96.49. A run of net weaker U.S. data, particularly last Friday's May employment report, has suggested a shallower Fed tightening trajectory lies ahead than hitherto expected. Fed funds futures were late yesterday implying 91% odds for a 25bp rate hike to come from the Fed's June 13-14 FOMC. USD-JPY fell for a third consecutive session, this time making a six-week low at 109.65. This continues the down trend that's been in place since a six-month peak was logged at 115.50 on May 10. EUR-JPY and most other yen crosses have also been on a weakening path, reflective of yen outperformance amid risk aversion in global stock markets. Data today showed wage growth returning in Japan, too. The dollar, meanwhile, posted fresh lows versus the pound, and Canadian and Australian dollars, the latter being supported by a fairly upbeat statement from the RBA following a widely anticipated no-change policy announcement. EUR-USD remained buoyant, but below the seven-month high seen last Friday at 1.1285.

    [EUR, USD]
    EUR-USD has remained buoyant, though has so far remained below the seven-month high seen last Friday at 1.1285. A run of net weaker U.S. data, particularly last Friday's May employment report, has suggested a shallower Fed tightening trajectory lies ahead than hitherto expected, which has been weighing on the dollar. Fed funds futures were late yesterday implying 91% odds for a 25bp rate hike to come from the Fed's June 13-14 FOMC. The euro itself has remained generally buoyant, although has come under pressure versus the outperforming yen. ECB's Weidmann last week has continued to make hawkish noises, contrasting the more dovish tone that president Draghi has been sending. EUR-USD had bee in a bullish phase since early April, though momentum indicators have been coming off the boil over the last couple of weeks (despite new higher highs), portending risk of a corrective phase. EUR-USD resistance is at 1.1285 and 1.1299-1.1300, and support is at 1.1216-20.

    [USD, JPY]
    USD-JPY fell for a third consecutive session, this time making a six-week low at 109.65. This continues the down trend that's been in place since a six-month peak was logged at 115.50 on May 10. EUR-JPY and most other yen crosses have also been on a weakening path, reflective of yen outperformance. Risk aversion in global stock markets has been keeping the Japanese currency bid, in accordance with the usual correlative pattern. Data today showed wage growth returning in Japan, too. We advise following the trend for now. USD-JPY has trend support at 109.17-20, and resistance at 110.31-33.

    [GBP, USD]
    Cable has posted a fresh 12-day high at 1.2950. A softer dollar is one part of the equation, while the pound itself has been bid since the release of the latest poll from ICM yesterday, as it put support for the Conservative Party at 45% versus 34% for Labour. Some of the responses came after the terrorist attack on Saturday night in London. This helped offset a couple of recent polls showing a much narrow lead, though the FT's poll of polls tracker has consistency showed the Conservatives with more than a 10 point lead. The latest ICM poll also offset a fairly big miss in the May services PMI reading out of the UK. Britain goes to the polls on Thursday. Former resistance in Cable at 1.2909-10 now reverts as support.

    [USD, CHF]
    EUR-CHF has drifted to four-week lows in the mid 1.08s, despite SNB governor Jordan's "franc is too strong" rhetoric last week, and a set of soft Swiss data., including a 0.3% q/q Q1 GDP growth figure, which undershot the median forecast for 0.5% growth and compares to 0.7% growth in the same quarter in the U.S. and 0.5% growth in the Eurozone. EUR-CHF still remains well up on the sub-1.07 levels that were prevailing in April before the French presidential elections, and we expect this to remain the case unless the euro comes under heavy pressure.

    [USD, CAD]
    USD-CAD has ebbed to an eight-day low of 1.3442. A generally weak U.S. dollar has been driving the move, offsetting the 3%-plus decline crude prices saw yesterday (a magnitude of movement that would often impact the Canadian dollar). USD-CAD's late May low at 1.3387 provides a downside reference marker. Resistance is at 1.3476-78.

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