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By XE Market Analysis June 18, 2020 3:53 am
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    XE Market Analysis: Europe - Jun 18, 2020

    The yen edged higher against most other currencies on a moderate safe haven bid as global equity markets continued a sputtering price action. A tussle between glass-half-full and glass-half-empty viewpoints continues to play out in global markets. In question is the scope for richly valued asset prices to sustain amid signs that reopening economies are causing a second-wave of coronavirus infections, with the surge in new cases in several U.S. states being a case in point, along with Beijing taking lockdown measures to contain an outbreak in the capital of the country that many thought had beaten the virus. Then there is the reality of changed social and consumer behaviour across global economies, and still-fractured supply chains, which are likely to ensure that the road back to economic normalcy is a long one, and won't likely be fully realized until such time there is vaccine and/or effective treatment of the SARS Cov-2 virus. Amid this backdrop, attention will turn to the latest weekly U.S. jobless claims report today, with the high frequency data of the world's biggest economy remaining a major focal point for markets. We expect ongoing moderation after 10 week of declines, forecasting a 1,200k level of initial claims for the week ended June 13th, down from 1,542k in the June-6th week. Among currencies, EUR-USD held comfortably within its Wednesday range, centering around 1.1250. Cable followed suit, holding well within the bounds of yesterday's low and high in settling near 1.2550. Moderate yen outperformance weighed on USD-JPY, which posted a six-day low at 106.70, while EUR-JPY hit a 16-day low and the risk-sensitive AUD-JPY cross a three-day low. AUD-USD edged out a two-day low at 0.6338, extending a correction from Tuesday's one-week high at 0.6977. USD-CAD lifted to a two-day high at 1.3608, extending a rebound from Tuesday's one-week low at 1.3502. Front-month WTI oil futures printed a two-day low at $37.12, continuing a broad consolidation phase after the benchmark crude price posted a three-month-plus high at $40.40 earlier in the month.

    [EUR, USD]
    EUR-USD held comfortably within its Wednesday range, centering around 1.1250, while EUR-JPY dipped to a 16-day low amid a bout of yen safe-haven demand as global markets struggle amid lofty valuations and signs of second-wave coronavirus infections as economies reopen. Market attention will today turn to the latest weekly U.S. jobless claims report, with the high frequency data of the world's biggest economy remaining a major focal point for markets. We expect ongoing moderation after 10 week of declines, forecasting a 1,200k level of initial claims for the week ended June 13th, down from 1,542k in the June-6th week. As-expected data would not likely have much bearing on the dollar. For EUR-USD, which has been trading toward the one-year highs that were seen in early March (near 1.1500), having recovered from the March low at 1.0637 (the lowest level seen since April 2017), we anticipate limited sustained directional bias in the months ahead, with little divergence seen in either Eurozone versus U.S. growth paths nor ECB versus Fed policies and yield differentials. The risk of setbacks on the road back to normalcy, which likely won't be achieved until such time there is a vaccine or effective treatment of the coronavirus, should keep the dollar prone to bouts of outperformance on safe haven demand, however.

    [USD, JPY]
    Moderate yen outperformance weighed on USD-JPY, which posted a six-day low at 106.70, while EUR-JPY hit a 16-day low and the risk-sensitive AUD-JPY cross a three-day low. This was a consequence of a moderate safe haven bid for the Japanese currency as global equity markets continued a sputtering price action. A tussle between glass-half-full and glass-half-empty viewpoints continues to play out in global markets. In question is the scope for richly valued asset prices to sustain amid signs that reopening economies are causing a second-wave of coronavirus infections, with the surge in new cases in several U.S. states being a case in point, along with Beijing taking lockdown measures to contain an outbreak in the capital of the country that many thought had beaten the virus. Then there is the reality of changed social and consumer behaviour across global economies, and still-fractured supply chains, which are likely to ensure that the road back to economic normalcy is a long one, and won't likely be fully realized until such time there is vaccine and/or effective treatment of the SARS Cov-2 virus. Amid this backdrop, attention will turn to the latest weekly U.S. jobless claims report today, with the high frequency data of the world's biggest economy remaining a major focal point for markets. We expect ongoing moderation after 10 week of declines, forecasting a 1,200k level of initial claims for the week ended June 13th, down from 1,542k in the June-6th week.

    [GBP, USD]
    Cable has been holding well within the bounds of yesterday's low and high in settling near 1.2550. The pound has been trading generally softer over the last day, against a backdrop of sputtering global stock markets. The UK currency had been bid earlier in the week after a top-level videoconference on EU-UK trade injected fresh intensity into the negotiations, though market participants are now turning their attention to the BoE policy, with the Monetary Policy Committee announcing later today following a two-day meeting. The BoE's policy review comes with UK May CPI having ebbed to a rate of just 0.5% y/y, a four-year low and extending a disinflation trend after 0.8% y/y in April. The data will have been well anticipated by policymakers, which have already implemented crisis response measures as a consequence of the coronavirus pandemic. The central bank is likely to keep its powder dry and leave policy settings unchanged at its announcement tomorrow, but will accompany this with unambiguously dovish guidance, including, we suspect, keeping open the possibility of negative interest rates.

    [USD, CHF]
    EUR-CHF has fallen back over the last week, though has continued to trade comfortably above the series of lows near 1.0500 that were seen from March through to mid May. Committed SNB intervention prevented the 1.0500 level from being breached over this period, when the consequences of the pandemic increasing bets about a possible breakup of the euro area, and even the EU. However, since the Franco-German backed EU recovery fund gained traction in mid May, these bets have gone sour, which led to a rebound in EUR-CHF. The recovery fund is up for ratification at the June 18th-19th EU summit. Assuming this passes, as looks likely (though its form still remains unclear), this should keep EUR-CHF supported for a while. Further out, the Swiss economy will likely be better able to recover from the pandemic era than the eurozone economy. Along with Swtizerland's massive current account surplus, these are factors that suggest upside potential for EUR-CHF will be limited, regardless of the SNB's desire for weaker franc. The central bank makes its quarterly review on monetary policy today. No change is expected, and policymakers are likely to signal a continuing ultra-dovish stance while re-pledging intervention tactics to limit franc appreciation.

    [USD, CAD]
    USD-CAD lifted to a two-day high at 1.3608, extending a rebound from Tuesday's one-week low at 1.3502. Front-month WTI oil futures printed a two-day low at $37.12, continuing a broad consolidation phase after the benchmark crude price posted a three-month-plus high at $40.40 earlier in the month.

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