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By XE Market Analysis June 13, 2018 3:11 am
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    XE Market Analysis: Europe - Jun 13, 2018

    Most currencies have been directionally dormant so far today, though USD-JPY managed to claw out a fresh three-week high at 110.68. Yen crosses also remained underpinned, though most, such as EUR-JPY and AUD-JPY, for instance, remained below recent highs. Global stock markets have lost upside traction, with risk appetite turning somewhat neutral as market participants anticipate "live" Fed and ECB meetings this week, with the former set, later today, to hike the Fed funds rate by 25 bp and the latter to announce, tomorrow, an end of QE. Attention will be on the respective guidance the central banks give. The Japanese currency has been underperforming as it loses some of its safe haven premium following all the bonhomie, feel good glow of the Trump-Kim summit.

    [EUR, USD]
    EUR-USD has settled in the mid 1.1700s after failing to sustain gains above 1.1800 in recent sessions. Earlier in the week, the pair had lifted to a high of 1.1820 before slipping back, leaving last week's three-week peak at 1.1839 untroubled and maintaining 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 this week 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. In the U.S., a rise in CPI to a rate of 2.8% y/y in May, up from 2.5% y/y in the month prior, should keep the Fed on a tightening course. The Fed announces on policy later today, where a 25 bp rate hike is widely expected. The focus will be on the guidance, which will be formed by the statement, the dot plot and revised economic forecasts. EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY clawed out a fresh three-week high at 110.68. Yen crosses also remained underpinned, though EUR-JPY and AUD-JPY, for instance, remained below recent highs. Global stock markets have lost upside traction, with risk appetite turning somewhat neutral as market participants anticipate "live" Fed and ECB meetings this week, with the former set, later today, to hike the Fed funds rate by 25 bp and the latter to announce, tomorrow, an end of QE. The Japanese currency underperforming as it loses some of its safe haven premium following all the bonhomie, feel good glow of the Trump-Kim summit. Assuming sentiment remains generally 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]
    Cable has ebbed back under 1.3400, tracking EUR-USD direction in large part. Inflations data are up today out of the UK. We expect headline May CPI to dip to a new cycle low of 2.4% y/y (median same) from 2.5% y/y in the month prior, and see core CPI to also remaining unchanged, at 2.1% y/y. We note some upside risk to the headline figure due to the recent sharp ascent of oil prices. As expected data shouldn't have much bearing on markets, which would likely be most sensitive to any unexpected weakness following sub-forecast wage, production and trade numbers (in data released earlier in the week). We see directional risks for Cable as being greater to the downside than to the upside, 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, though this dynamic has come to pass. In the bigger view, the phase of euro weakness that was seen in May 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 lifted to a three-day high of 1.3033. The backdrop of ongoing simmering tensions following the public falling-out between President Trump and Canada's Trudeau has continued to cast a negative impact on the Canadian dollar. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. Support comes in at 1.2998-1.3000.

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