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By XE Market Analysis June 12, 2018 3:40 am
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    XE Market Analysis: Europe - Jun 12, 2018

    The dollar traded moderately firmer heading into the London interbank open, led by a 0.3% gain in USD-JPY, which logged a three-week high just shy of 110.50. Yen crosses also firmed up, reflecting broader softness in the yen as safe haven premiums unwound amid a caution sense of optimism in global markets about the Trump-Kim summit, which has just ended. The summit produced a joint signing of an "important document," though details about its content have not, so far, been made available. The summit produced imagines of cordiality and rhetoric (and tweets) of optimism -- rhetoric emphasizing historical turning points and of new relationships and prospects for peace etc. Whether Kim turns out to have actually committed to team Trump's demands for full and verifiable commitment to denuclearization remains to be seen, but, if he didn't, whatever baby-step towards this grand goal Kim has offered looks to have been satisfactory to Trump. Assuming things remain upbeat, and global stock market direction remains tilted upwards, the yen would likely remain on a softening path, and USD-JPY on a firming path. Among other pairings, EUR-USD dipped to a two-session low of 1.1742 in the wake of the Tokyo fix before settling around 1.1770. Cable, which took a hit yesterday from big misses in UK production and trade data, posted a one-week low of 1.3341.

    [EUR, USD]
    EUR-USD dipped to a two-session low of 1.1742 in the wake of the Tokyo fix before settling around 1.1770. The pair had yesterday lifted to a high of 1.1820 before stalling and slipping back under 1.1800, which left last week's three-week peak at 1.1839 untroubled and maintained a feeling that the euro's rebound has lost puff, even amid expectations for the ECB to announce an end to QE policy at its meeting on Thursday. The new Italian finance minister had also mollified markets by pledging commitment to the euro, though the political situation in Italy still requires circumspection with regard to how viable a government the coalition of the Five Star and League populist parties 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 lifted to a three-week high of 110.49 amid a caution sense of optimism in global markets about the Trump-Kim summit. The summit was still ongoing at the time of writing, but which has so far produced imagines of cordiality and rhetoric of optimism -- rhetoric emphasizing historical turning points and of new relationships and prospects for peace etc. Whether Kim will actually commit to President Trump's demands for full and verifiable commitment to denuclearization remains to be seen, and whether whatever baby-step towards this grand goal Kim offers will be satisfactory to Trump, remains to be seen. Assuming things remain upbeat, and global stock market direction remains tilted upwards, the yen would likely remain on a softening path, and USD-JPY on a firming path. The pair has support at 110.10-13.

    [GBP, USD]
    The pound has lost ground to the dollar over the last day, though has still managed modest gains versus the underperforming yen. A big miss in UK April production and trade data yesterday put a dent in the sterling. Cable extended lower today, posting a one-week low of 1.3341. Sterling markets will now be focusing on a significant Brexit event today, being the so-called "Super Tuesday", which will be a 12-hour marathon session in the House of Commons to debate and 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. We expect further downside in Cable, seeing scope for revisit of the May low at 1.3204.

    [USD, CHF]
    EUR-CHF has softened back some after printing a three-week high at 1.1657 on Monday. The gains 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 has settled around the 1.3000 mark after initially spiking sharply higher in early-week trading following by the public falling-out between President Trump and Canada's Trudeau. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. Support comes in at 1.2923-25.

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