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By XE Market Analysis June 29, 2018 3:29 am
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    XE Market Analysis: Europe - Jun 29, 2018

    Both the dollar and yen have weakened against most of the other main currencies, with the yen underperforming, while the euro outperformed on meeting some strong demand on news that EU members had thrashed out deal on immigration. The deal aims to shore up external borders and create screening centres for migrants, which is seen as placating the placating the Italian populist government and broader Eurosceptic, populist movements across the region. EUR-USD flipped back above 1.1650, rallying about a big figure in total before capping out at two-day high of 1.1666, and most euro crosses concurrently rallied, too. USD-JPY lifted above Wednesday's 110.49 high as global stock markets rebounded, causing an unwinding of the Japanese currency's safe haven premium. EUR-JPY and AUD-JPY, among other yen crosses, also strengthened strongly. China's PBoC said today it would use comprehensive policy tools to maintain positive economic developments and stabilize market expectations.

    [EUR, USD]
    The euro rallied on news that EU members had thrashed out deal on immigration. The deal aims to shore up external borders and create screening centres for migrants, which is seen as placating the placating the Italian populist government and broader Eurosceptic, populist movements across the region. EUR-USD flipped back above 1.1650, rallying about a big figure in total before capping out at two-day high of 1.1666, and most euro crosses concurrently rallied, too. The pair remains in broadly consolidative phase after a downtrend from mid-April levels above 1.2400. The range over this phase has been 1.1508 to 1.1851. Trade tensions along with concerns about the Eurosceptic Italian government have been overriding normal fundamental leads. Regarding trade protectionism, the view on the street is that a scenario of a deepening and prolonging trade war would be bullish for EUR-USD, given the vulnerability posed to the dollar by the U.S. twin deficits during any sustained episode of risk-off-driven capital flight. Any sign of a negotiated resolution would conversely be bearish.

    [USD, JPY]
    USD-JPY lifted above Wednesday's 110.49 high as global stock markets rebounded, causing an unwinding of the Japanese currency's safe haven premium. EUR-JPY and AUD-JPY, among other yen crosses, also strengthened strongly. China's PBoC said today it would use comprehensive policy tools to maintain positive economic developments and stabilize market expectations. USD-JPY remains in a broadly choppy, sideways range, which has been unfolding over the last six weeks. More of the same looks likely, with fundamentals (Fed versus BoJ policy paths) bullish but offset by the risks stemming from a deepening and prolonging trade way among major economies, a backdrop that has the Japanese currency in demand as a safe haven.

    [GBP, USD]
    Sterling lifted out of lows after BoE Chief Economist Haldane justified his decision to join the ranks of MPC dissenters in voting for a rate hike at the policy meeting last week. This provided a trigger of interbank and short-term speculative accounts to trim sterling short positions after a period of underperformance. Cable rose back above 1.3100, putting in some distance from the seven-month low that was printed at 1.3050. However, price action this week marked a resumption of the bear trend that's been unfolding since mid April, from levels above 1.4350. This reflected rekindled Brexit discount. Major and minor businesses (including Airbus), warned the government this week to get a move on with regard to assuring that there will be a smooth post-Brexit customs border, and things have been coming to some sort of a head into today's EU leaders' summit amid reports that many EU nations have been intensifying work on contingency plans for a no-deal scenario (although the immigration issue seems to have usurped Brexit as the central focus of the summit). The BoE has long since caveated that its relatively upbeat prognosis of the UK economy hinges on a smooth Brexit. Cable has support at 1.3050 (trend low) and trend support 1.3017-20.

    [USD, CHF]
    EUR-CHF has nudged higher over the last day, but remains entrenched in the mid 1.1500s. SNB's Maechler said this week that the franc "remains highly valued" despite the depreciation seen over the last year. He argued that "we are in extraordinary times and we are using unconventional measures. And with inflation in positive territory we are very happy about it". The the comments affirm that the SNB is firmly on hold, with Maechler admitting that the SNB's monetary policy room for maneuver is "necessarily" affected by the actions of ECB and Fed.

    [USD, CAD]
    USD-CAD posted its biggest single day drop in a month yesterday in tumbling to the lower 1.3200s, extending from a one-year high that was pegged at 1.3387 on Wednesday. BoC Governor Poloz showed himself to be very much in want of further rate hikes, in a speech and Q&A session on Wednesday. The big surge in oil prices over the last week, has also been a prop for the Canadian dollar. USD-CAD has resistance at 1.3280, and support at 1.3210-11.

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