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By XE Market Analysis June 18, 2018 3:17 am
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    XE Market Analysis: Europe - Jun 18, 2018

    The dollar majors have posted narrow ranges so far today, heading into the London interbank open. EUR-USD has consolidated in a narrow range, for instance, just above Friday's three-week low at 1.1543, USD-JPY dipped to a low of 110.30, which is 60 pips below the high that was seen on Friday. The decline reflected moderate yen firmness, seen amid the backdrop of next-level trade tensions following the Trump administration's slapping of tariffs on $50 bln worth of Chinese imports on Friday, and Beijing's near instant response of tariffs on U.S. imports. Trump is also reportedly considering putting tariffs on a further $100 bln worth of Chinese imports. The risk averse backdrop has richened the yen's safe haven premium, which has more than offset otherwise bullish fundamentals for USD-JPY. The AUD-JPY cross, which trades like a high beta asset, edged out a fresh three-week low.

    [EUR, USD]
    EUR-USD has consolidated in a narrow range, for instance, just above Friday's three-week low at 1.1543. The ECB's dovish-tilting guidance of last week served to emphasize the Fed's relatively hawkish stance, which should keep EUR-USD a sell-into-rallies trade. After a two-week hiatus, the sharp loss of late last week has reaffirmed a bear trend that's been in evolution since mid April. The weekly close on Friday below the previous weekly close at 1.1659 also affirmed bear trend credentials. Resistance is at 1.1627-30.

    [USD, JPY]
    USD-JPY dipped to a low of 110.30, which is 60 pips below the high that was seen on Friday. The decline reflected yen strength, seen amid the backdrop of next-level trade tensions following the Trump administration's slapping of tariffs on $50 bln worth of Chinese imports on Friday, and Beijing's near instant response of tariffs on U.S. imports. Trump is also reportedly considering putting tariffs on a further $100 bln worth of Chinese imports. The risk averse backdrop has richened the yen's safe haven premium, which has more than offset otherwise bullish fundamentals for USD-JPY (given the contrasting Fed versus BoJ policy paths). USD-JPY has support at 110.09-10.

    [GBP, USD]
    Cable has settled in the upper 1.132s after posting a near-four-week low at 1.3211 on Friday. The pair has been tracking EUR-USD direction closely in recent sessions. As for UK fundamentals, strength in the May retail sales report, released last Thursday, can be downplayed as having been caused by one-off factors (think good weather and royal wedding, along with a flattering base effect in the y/y comparison), while, before this, there has been a run of sub-forecast UK releases. April data earlier in the week showed 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 have been 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 on Friday and has remained heavy since. The losses followed the ECB's dovish guidance signal of last Thursday, which saw the cross tumble from levels above 1.1600. EUR-CHF is now 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 has remained buoyant after last week smashing through late May highs on route to posting a one-year high at 1.3210. The unexpectedly hawkish Fed guidance last 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, partly on the recent, sharp oil price declines (seen into the OPEC and Russia meeting this Friday), and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3019-20.

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