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By XE Market Analysis June 21, 2018 2:50 am
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    XE Market Analysis: Europe - Jun 21, 2018

    The dollar has traded firmer, with, for instance, USD-JPY edging out a four-session high of 110.75, Cable making a fresh seven-month low of 1.3141, AUD-USD a 13-month low at 0.7329, and USD-CAD posting a new one-year high of 1.3325. EUR-USD has been among the exceptions in so far remaining within its range from yesterday, near the 1.1550 level and above the three-week low seen on Tuesday at 1.1531. Yield differentials remain a draw of the greenback, with Fed Chairman Powell yesterday maintaining expectations for further rate hike. The escalating trade war have been casting a pall on global equity markets, inspiring a choppy session in Asia so far, while the dollar is seen as something of a haven currency.

    [EUR, USD]
    EUR-USD has remained heavy but within its range from yesterday, remaining near the 1.1550 level and above the three-week low seen on Tuesday at 1.1531. Yield differentials remain a draw of the greenback, with Fed Chairman Powell yesterday maintaining expectations for further rate hike. This follows the run of dovish-tilting remarks from ECB policymakers this week, with the central bank's president, Draghi, remarking that "we will be patient will the timing of the first and will take a gradual approach... thereafter." We had been advocating fading EUR-USD gains in the wake of the ECB's dovish-tilting guidance of last week, which put emphasis on the Fed's tightening path. After a two-week hiatus, the sharp declines since last Thursday have reaffirmed a down trend that's been in evolution since mid April. The weekly close on Friday below the previous weekly close at 1.1659 is consistent with Dow Theory's definition of a bear trend. EUR-USD has resistance is at 1.1597-1.1600.

    [USD, JPY]
    USD-JPY edged out a four-session high of 110.75. Yield differentials remain a draw of the greenback, with Fed Chairman Powell yesterday maintaining expectations for further rate hike. The escalating trade war have been casting a pall on global equity markets, inspiring a choppy session in Asia.. Fundamentals remain unambiguously bullish, given the Fed's course for further monetary policy tightening and the BoJ likely to remain committed to ultra-accommodative policy -- including the pegging of 10-year JGB yields at near 0% -- well into 2019, and even 2020. However, there is a risk of there being further bouts of risk-off conditions in global markets as the trade war evolves, which would likely be supportive of the yen.

    [GBP, USD]
    Cable printed fresh seven-month lows under 1.3150, price action that has reaffirmed the downtrend that's been evolving for two months now. Markets are anticipating the BoE MPC to announce no changes in policy at the conclusion of the two-day meeting today 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, away from the August meeting. We have been advising trend following with regard to Cable. Resistance is at 1.3230.33.

    [USD, CHF]
    EUR-CHF has settled back above 1.1500 after printing a three-week low at 1.1487 earlier in the week. The cross was pressured from levels above 1.1600 in the wake of the ECB's dovish guidance signal of last Thursday. 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 fifth consecutive session, printing today a fresh one-year high at 1.3327. Last week's unexpectedly hawkish Fed guidance, a possible easing in oil supply quotas by OPEC and Russia (to be decided at Friday's meeting in Vienne), and ratcheting trade tensions have been supportive of USD-CAD. We retain a bullish view, 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 1.3227-30.

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