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By XE Market Analysis June 12, 2019 3:29 am
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    XE Market Analysis: Europe - Jun 12, 2019

    A modest risk-back-off theme descended, which drove a bid for Yen and offers for commodity currencies. The biggest mover out of the main Dollar pairings and associated cross rates we monitor has been AUD-JPY, which is an effective forex market barometer of risk appetite in global markets. The cross ebbed by over 0.3% in making an eight-day low at 75.24. USD-JPY printed a two-day low, at 108.30. EUR-USD, meanwhile, edged out a three-session high at 1.1340, while Cable printed an intraday peak at 1.2730. AUD-USD, in contrast, was weighed down by underperformance in the antipodean currency, which saw the pair carve out a nine-day low at 0.6943. In equity markets, Asian markets gave up opening gains and drifted moderately into the red. S&P 500 futures also went negative after the cash version of the index closed flat on Wall Street yesterday after a five-day winning streak. The relief rally on easing U.S.-Mexico tensions flagged out, while even the prospect for fresh stimulus in China failed to sustain Chinese stock markets. Data showed Japan’s April core machinery orders rising at the quickest pace in more than six months, though this series is notoriously volatile month-to-month, and didn't have much bearing on market sentiment. As for the U.S. vs China situation, planned meetings between top-level officials from both sides at the upcoming G20 gathering have arrested what had started to seem to be an irrevocable downward spiral in relations between Washington and Beijing. Focus today will fall on the release of U.S. CPI data.

    [EUR, USD]
    EUR-USD edged out a three-session high at 1.1340. Recent price-movement dynamics have mostly reflected Dollar volatility, with the U.S. currency diving in the wake of last Friday's sub-forecast U.S. May jobs report (which exacerbated fears that slowing in manufacturing and capex on trade uncertainties are spilling over to the broad economy and labor market), before rallying back on the news that the U.S. and Mexico have reached a deal on migration, which allayed investor concerns on trade and igniting a 6bp-odd spike in the 10-year U.S. T-note yield. This came after EUR-USD posted a 1.5% rise last week, the biggest weekly advance since August last year. The pair now looks stuck without strong directional impulse. U.S. inflation figures this week are the biggest market-moving risk this week, along with retail sales at the end of the week. We estimate today's release of CPI to come in with a 0.1% May gain in the headline reading with a 0.2% increase in core prices, following respective April readings of 0.3% and 0.1%. This would translate to a headline y/y gain of 1.9%, down from 2.0% in April, which should maintain Fed easing expectations. EUR-USD has support at 1.1276-78, and resistance at 1.1347-50.

    [USD, JPY]
    A modest risk-back-off theme descended, which drove a bid for Yen and offers for commodity currencies. The biggest mover out of the main Dollar pairings and associated cross rates we monitor has been AUD-JPY, which is an effective forex market barometer of risk appetite in global markets. The cross ebbed by over 0.3% in making an eight-day low at 75.24. USD-JPY printed a two-day low, at 108.30. In equity markets, Asian markets gave up opening gains and drifted moderately into the red. S&P 500 futures also went negative after the cash version of the index closed flat on Wall Street yesterday after a five-day winning streak. The relief rally on easing U.S.-Mexico tensions flagged out, while even the prospect for fresh stimulus in China failed to sustain Chinese stock markets. Data showed Japan’s April core machinery orders rising at the quickest pace in more than six months, though this series is notoriously volatile month-to-month, and didn't have much bearing on market sentiment. As for the U.S. vs China situation, planned meetings between top-level officials from both sides at the upcoming G20 gathering have arrested what had started to seem to be an irrevocable downward spiral in relations between Washington and Beijing. Focus today will fall on the release of U.S. CPI data.

    [GBP, USD]
    Sterling has settled after vaulting higher yesterday on the UK perky wage data, which provided interbank and short-term speculative participants to put a squeeze on short positions, especially with the data coming after BoE MPC hawk Saunders reminded markets that prevailing Brexit uncertainty won't necessarily stop the central bank from tightening policy, if it were necessary to anchor inflation. The pound had on Monday taken a wallop following the big miss in April GDP and production data out of the UK. Average UK household income in the three months to April came in at 3.1% y/y in the including-bonus metric, slightly surpassing the median forecast for 3.0%. This came with the unemployment rate remaining unchanged at 3.8%, which is the lowest rate sine October-December 1974, while the employment rate came in at 76.1%, the joint-highest on record. A good degree of wariness is warranted as anecdotal evidence and the more timely employment components in the May PMI surveys point to a deterioration in labour market conditions. The robust April employment data belies an economy sputtering amid prolonged political and associated Brexit uncertainty, along with a slowing economies in continental Europe. We don't seen much upside potential for the pound at this juncture, especially with arch Brexiteer Boris Johnson favourite to become the new prime minister. "BoJo" is running his campaign on a hard, no-deal-if-necessary Brexit, which would see the UK adopt less favourable WTO trading terms after exiting the EU. Cable has support at 1.2691-93, and resistance at 1.2742-45.

    [USD, CHF]
    EUR-CHF yesterday extended to a two-week high at 1.1247 before settling moderately lower. The gains reflected an unwinding in safe-haven positioning following U.S.-Mexico developments and the recent burgeoning in central bank easing expectations. The gain put some further space in from the 23-month low that was printed at 1.1119 earlier in the week. The SNB's Alternate Governing Board Member Moser said recently that in his view "if we had higher interest rates then we would have a stronger exchange rate", which something the central bank is ever eager to prevent. The SNB contianues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said that the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase.

    [USD, CAD]
    USD-CAD logged a 1.3309 rebound peak yesterday before settling back under 1.3300. The pair remains in a consolidation after printing an 11-week low on Monday yesterday at 1.3243, which extended losses seen following last Friday's sub-forecast U.S. jobs data, which juxtaposed forecast-beating Canadian jobs data. Softer oil prices, after a period of strong gains, has dented the upside bias of the Canadian currency, though the improvement in U.S.-Mexican relations boding well for the yet to be ratified North American trade agreement. USD-CAD dove sharply on Friday to an 11-week low at 1.3262 in what was the biggest dialy drop since February 22, and the biggest weekly drop since the last week of December, before extending further south this week, posting a three-month low at 1.3243. The pair has resistance at 1.33005-10.

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