Home > XE Currency Blog > XE Market Analysis: Europe - Jun 15, 2018

AD

XE Currency Blog

Topics5479 Posts5524
By XE Market Analysis June 15, 2018 3:14 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3678
    XE Market Analysis: Europe - Jun 15, 2018

    The dollar has traded broadly firmer so far today, with the ECB's dovish-tilting guidance yesterday coupled with the BoJ lowering its prognosis on the inflation outlook (following a widely-anticipated decision to leave monetary policy unchanged) serving to emphasize the Fed's relatively hawkish stance. EUR-USD extended to a fresh 16-day low of 1.1555 in Asia trading. The pair had been trading above 1.1820 ahead of the ECB's announcement yesterday, and the magnitude of losses are the sharpest over a day since October 26th-27th of last year. USD-JPY, meanwhile, lifted to a 24-day high of 110.99. The BoJ's downgraded CPI forecast underlines the chronic undershooting of the inflation target and points to ongoing ultra-accommodative policy --- which includes pegging the 10-year JGB yield at near 0% -- for the foreseeable, certainly through to 2019. The dollar also posted gains against the dollar bloc currencies and sterling, and most other currencies, including emerging and newly-developed world currencies. Market participants will now be bracing for President Trump's expected escalation of trade tariffs, as he will reportedly be confirming tariffs on China later today.

    [EUR, USD]
    EUR-USD extended to a fresh 16-day low of 1.1555 in Asia trading. The ECB's dovish-tilting guidance yesterday served to emphasize the Fed's relatively hawkish stance, sending the euro spinning, especially against the dollar. EUR-USD had been trading above 1.1820 ahead of the ECB's announcement yesterday, and the magnitude of losses are the sharpest over a day since October 26th-27th of last year. After a two-week hiatus, the price action reaffirms a bear trend that's been in evolution since mid April. Resistance comes in at 1.1669-70. We would look for a weekly close today below the previous lowest weekly close at 1.1659 to affirm the bear trend credentials.

    [USD, JPY]
    USD-JPY lifted to a 24-day high of 110.99 after the BoJ lowered its inflation projection following a widely-anticipated decision to leave monetary policy settings unchanged at its meeting today. The new inflation forecast underlines the chronic undershooting of the inflation target and points to ongoing ultra-accommodative policy --- which includes pegging the 10-year JGB yield at near 0% -- for the foreseeable, certainly through to 2019. Given the contrast to the Fed, this reinforces the bullish fundamental underpinning of USD-JPY, although any bouts of sharp risk-off sentiment in global markets will remain a downside risk (and, regarding this, we should watch the reaction in markets from President Trump's expected escalation of trade tariffs). Support comes in at 110.39-40, while the May 21 high at 111.39 provides an upside target.

    [GBP, USD]
    Cable has been pulled lower by EUR-USD over the last day, posting a near-four-week low at 1.3229 even while the pound prints a seven-session highs against the euro, which has been a consequence of the common currency's ECB-inspired underperformance. Cable had seen a peak at 1.3447 yesterday following an above-forecast retail sales report out of the UK, and the subsequent decline has made this the biggest daily decline since May 1. As we had caveated, the impressive 1.3% m/m and 3.9% y/y retail sales growth in May data were caused by one-off factors (think good weather and royal wedding, along with a flattering base effect in the y/y comparison), suggesting that some caution was warranted in interpreting the data. A run of sub-forecast UK data also continues to resonate, with April data earlier in the week showing an unexpected deceleration in wage growth -- a metric being closely monitored by the BoE -- and sharply weaker-than-expected production and trade data. May PMI surveys, released earlier in the month, also highlighted weakness in forward-looking indicators, such as new business growth. We are looking for Cable to revisit the late May seven-month low at 1.3204. Resistance is at 1.3297-98.

    [USD, CHF]
    EUR-CHF dropped to a 10-day low of 1.1525 following the ECB's dovish guidance, down from levels above 1.1600. This returns the cross to about midway levels of the range that's been seen over the last three weeks. The ECB's policy stance should ensure that the SNB remains resolutely committed to its ultra-accommodative monetary policy setting in an attempt to ward off, or at least limit, franc gains against the euro.

    [USD, CAD]
    USD-CAD smashed through late May highs on route to posting a one-year high at 1.3147. The unexpectedly hawkish Fed guidance this week has given the pair an underpinning, adding to concerns about trade tensions between the U.S. and Canada. We retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and partly on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3019-20.

    Paste link in email or IM