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By XE Market Analysis June 14, 2018 2:12 am
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    XE Market Analysis: Europe - Jun 14, 2018

    The dollar has more than given back gains seen in the immediate wake of the Fed's rate hike and hawkish-tilting guidance. EUR-USD recouped back above 1.1800 after dipping to a 1.1725 low, post Fed. The euro has been trading generally firmer over the last day, gaining against the pound, Swiss franc, among other currencies, with market narratives focusing on the successful Italian auction of 30-year bonds yesterday, with the appetite for the long-dated debt seen as a good litmus test of investor sentiment on the new Italian government. Market participants are also anticipating the ECB to announce an end of QE policy today. Elsewhere, USD-JPY printed a three-day low of 110.04. The biggest movement out of the main currencies has been AUD-JPY, and is showing a loss of over 0.5%. The Aussie dollar has been under pressure following a sub-forecast Australian employment report. Ahead today, the ECB is expect to announce the end of QE, while U.S. President Trump will reportedly decide whether to proceed with tariffs on Chinese goods later on Thursday (and his unabashed form this week suggests he won't hold back).

    [EUR, USD]
    EUR-USD recouped back above 1.1800 after dipping to a 1.1725 low in the immediate wake of the Fed's rate hike and hawkish-tilting guidance. The euro has been trading general firmer over the last day, gaining against the pound, Swiss franc, among other currencies, with market narratives focusing on the successful Italian auction of 30-year bonds yesterday, with the appetite for the long-dated debt seen as a good litmus test of investor sentiment on the new Italian government. The new Italian finance minister mollified markets earlier in the week by pledging that the new government is committed to the euro. Market participants are also anticipating the ECB to announce an end of QE policy today. Taking a step back, and even accounting for the present phase of buying, the euro looks to have lost upside traction following the ascent posted during the first week of the month. EUR-USD failed to sustain multiple forays above 1.1800 in recent sessions, leaving last week's three-week peak at 1.1839 untroubled. The Fed's bullish assessment of the economy is also in the mix (although Chairman Powell noted that the central bank's models aren't showing a spike in inflationary pressures). EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY has ground moderately lower in the wake of the Fed's rate hike, which saw Wall Street close lower and led to a bearish session across Asian bourses, although stock market declines haven't been too substantial for the most part as investors digest the hawkish tone of the Fed on the hand and its plainly bullish assessment of the U.S. economy on the other. In firming today, the yen has followed its oft-seen inverse correlation with global equity market direction. The biggest movement out of the main currencies has been AUD-JPY, a cross which trades like a high beta asset, and which is showing a 0.3% decline presently, although off its lows (the Aussie dollar has also been under pressure following a sub-forecast Australian employment report). USD-JPY printed a low at 110.08 in pre-Tokyo open trading in Asia-Pacific, which breached yesterday's low, before settling around 110.20-30. Ahead today, the ECB is expect to announce the end of QE, while U.S. President Trump will reportedly decide whether to proceed with tariffs on Chinese goods later on Thursday (his unabashed form this week suggests he won't hold back). Fundamentals are bullish for USD-JPY, but the risk for a sustained bout of equity market turbulence suggests the pair may be heading lower over coming sessions.

    [GBP, USD]
    Cable settled back near the 1.13400 after dipping to a low of 1.3319 in the initial wake of the Fed's rate hike and hawkish-leaning guidance. Despite this price action, we still see directional risks as being greater to the downside than to the upside, seeing scope for revisit of the May low at 1.3204. UK markets are likely to recommence a positional adjustment to a run of sub-forecast data this week, most notably an unexpected deceleration in wage growth, a metric being closely monitored by the BoE, and sharply weaker-than-expected production and trade data. The net impact has been a reduction in odds for BoE tightening as soon as August.

    [USD, CHF]
    EUR-CHF has lifted back above 1.1600, underpinned by broadly buoyant demand for the common currency. 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 retreated back under 1.3000, leaving a five-session peak at 1.3051. A lift in oil prices over the last day, following EIA data showing a drop in U.S. crude inventories, have the Canadian dollar a lift. The backdrop of ongoing simmering tensions following the public falling-out between President Trump and Canada's Trudeau should curtail demand for the Loonie, however, and we retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. Resistance is at 1.2998-1.3000.

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