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By XE Market Analysis June 19, 2018 2:48 am
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    XE Market Analysis: Europe - Jun 19, 2018

    The yen has rallied amid a risk averse backdrop, with stock markets in Asia and U.S. equity index futures dropping sharply after President Trump threatened China with $200 bln of fresh tariffs. USD-JPY has so far dropped to a six-session low at 109.63, and the pair is very much amid a downward path just ahead of the London interbank open. The biggest mover has been AUD-JPY, a cross rate which trades like a high beta asset and thereby has a reputation of being something of a forex market risk-appetite barometer. The cross has lost just over 1.3%, printing two-and-a-half-month lows under 81.0. Other yen crosses are also down, with EUR-JPY, for instance, foraying into three-week low territory under 127.40. In stock markets, China's Shanghai Composite has lost over 3%, while S&P 500 futures are down 1%. As for non-yen pairings and cross rates, the dollar bloc currencies stand out as being underperformers, while many emerging market currencies, already reeling following last week's hawkish Fed guidance, have posted fresh lows for the year against the dollar. EUR-USD, by contrast, is presently settled at near net unchanged levels on the day, at 1.1620 bid.

    [EUR, USD]
    EUR-USD lifted to a high of 1.1644 before stalling and settling nearer the 1.1600 level. EUR-JPY fell to three-week lows amid yen outperformance, with the Japanese currency in demand as a safe haven as the Trumpian trade tensions continue to ratchet. Regarding EUR-USD, the ECB's dovish-tilting guidance of last week served to emphasize the Fed's relatively hawkish stance, and we think this should leave 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 1.1650-55.

    [USD, JPY]
    The yen has rallied amid a risk averse backdrop, with stock markets in Asia and U.S. equity index futures dropping sharply after President Trump threatened China with $200 bln of fresh tariffs. USD-JPY has so far dropped to a six-session low at 109.63, and the pair is very much amid a downward path just ahead of the London interbank open. The biggest mover has been AUD-JPY, a cross rate which trades like a high beta asset and thereby has a reputation of being something of a forex market risk-appetite barometer. The cross has lost just over 1.3%, printing two-and-a-half-month lows under 81.0. Other yen crosses are also down, with EUR-JPY, for instance, foraying into three-week low territory under 127.40. In stock markets, China's Shanghai Composite has lost over 3%, while S&P 500 futures are down 1%.

    [GBP, USD]
    Cable has settled to a sideways chop in the mid 1.132s, above the four-week low at 1.3211 that was posted last Friday. The pair has been tracking EUR-USD direction closely in recent sessions. Markets are anticipating this week's BoE MPC meeting to hold policy unchanged while acknowledging a run of weaker data, the net result of which will likely be to push expectations for a 25 bp rate hike to the November MPC meeting and away from the August meeting. Brexit-related uncertainty remains in play, with a divided government still hammering out what type of Brexit -- soft or hard -- it wants. 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 has dropped to two-week low of 1.1515. 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 is up for a fourth consecutive session, printing today a fresh one-year high at 1.3240. The new high comes with trade tensions ratcheting up another gear with Trump threatening to levy a further tariffs on $200 bln worth of Chinese imports. This has hit the dollar bloc currencies, and follows the unexpectedly hawkish Fed guidance last week. We retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3159-60.

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