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By XE Market Analysis June 11, 2018 5:09 am
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    XE Market Analysis: Europe - Jun 11, 2018

    Currencies settled after an initial jolt in early Asia-Pacific trading after the weekend dramatics of President Trump's refusing to sign off on the G7 communique. A cautious calm subsequently prevailed, with stock markets lifting out of lows and the yen unwinding some of its safe haven premium. USD-JPY rebounded toward 110.00 from an early-session wobble that left a loft at 109.32. USD-CAD, which initially spiked sharply, to a 1.3003 high, on the public falling out between President Trump and Canada's Trudeau, subsequently to narrow range-trading around the 1.2970 mark. EUR-USD, along with euro crosses, started the week buoyantly as markets anticipate a policy shift from the ECB this Thursday. The pair lifted over 40 pips to a 1.1815 high before stalling, leaving last week's three-week peak at 1.1839 untroubled. Major risk events loom: Trump's meeting with North Korea's Kim, tomorrow, which looks set to be a superficial success -- superficial should the hyper-insecure Kim stop short of making a concrete agreement to denuclearization; the Fed's FOMC, which starts tomorrow and announces on Wednesday, where a 25 bp rate hike is a near fait accompli and where focus will be on the central bank's guidance; the ECB's meeting on Thursday, where we expect an end to QE to be announced; and, last but not least, the sharp deterioration trade relations.

    [EUR, USD]
    EUR-USD, along with euro crosses, started the week buoyantly as markets anticipate a policy shift from the ECB this Thursday, where we expect the central bank to announce an end to QE. EUR-USD lifted over 40 pips to a 1.1815 high before stalling, leaving last week's three-week peak at 1.1839 untroubled. The political situation in Italy still requires circumspection with regard to how viable a government Italy's populist Five Star and League will prove to be, and whether their anti-establishment, Eurosceptic colours will start to show through in policy. EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY rebounded toward 110.00 from an early-session wobble that left a loft at 109.32. The low was seen as markets initially reacted in a panicky manner following the weekend dramatics of President Trump's refusal to sign off on the G7 communique. A cautious calm subsequently prevailed, with stock markets lifting out of lows and the yen unwinding some of its safe haven premium. Major events now loom: Trump's meeting with North Korea's Kim, tomorrow, which looks set to be a superficial success -- superficial should the hyper-insecure Kim stop short of making a concrete agreement to denuclearization; the Fed's FOMC, which starts tomorrow and announces on Wednesday, where a 25 bp rate hike is a near fait accompli and where focus will be on the central bank's guidance; the ECB's meeting on Thursday, where we expect an end to QE to be announced; and, last but not least, the sharp deterioration trade relations. Because of these risk factors, we recommend fading USD-JPY gains. Resistance is at 110.09-10, and 110.25-26.

    [GBP, USD]
    Cable has been settled near the 1.3400 level without much directional bias. A significant Brexit event looms this week, being the so-called "Super Tuesday", which will be a 12-hour marathon session in the House of Commons to vote on proposed amendments to the Brexit Bill. Most likely, although not entirely certain, the government's position for a "hard" Brexit -- to withdrawal from the EU's single market and customs union -- will prevail. The opposition Labour Party's position favours a soft Brexit -- remaining within the customs union while prioritizing "full access" to the single market in negotiations with the EU. We see that downside risks for Cable are greater than upside risks. Resistance comes in at 1.3474-75.

    [USD, CHF]
    EUR-CHF lifted above 1.1600, printing a near-three-week high at 1.1657. The gains have tagged EUR-USD gains as markets discount the ECB announcing the end of QE at its policy meeting this Thursday. The recent phase of euro weakness saw the cross lose over 4% from the 41-month that was printed a month ago at 1.2005, which was the summit of an 11-month rally phase, and which in turn was a reflection of what had been -- before recently -- a sense of abating existential risks that the Eurozone was facing. The jury will remain out about how market friendly Italy's new government turns out to be.

    [USD, CAD]
    USD-CAD spiked sharply to a 1.3003 high at the open of trading today, prompted by the public falling-out between President Trump and Canada's Trudeau, though the pair subsequently retreated to narrow range-trading around the 1.2970 mark. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. USD-CAD has support is at 1.2923-25.

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