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By XE Market Analysis May 14, 2019 3:21 am
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    XE Market Analysis: Europe - May 14, 2019

    The Yen has softened today amid a modest correction in risk-off positioning in forex markets, which has been concomitant with a 0.4% rebound in S&P 500 futures after the cash version of the index closed on Wall Street with a 2.4% loss. Asian equity markets are mostly showing declines, though most have pared steep losses seen in early trading. Both U.S. and China have given mollifying remarks to investors. China's State Councillor Wang Yi said earlier that both sides that "the ability and wisdom to resolve each other’s reasonable demands, and in the end reach a mutually beneficial, win-win agreement." President Trump for his part said that he will meet with President Xi at the late-June G20 summit, while Treasury Secretary Mnuchin stated that talks with China remain ongoing. At the same time, the Trump administration let in be known that it is preparing to slap tariffs on remaining Chinese imports. USD-JPY lifted back to the mid-to-upper 109.00s, up from the three-month low seen yesterday at 109.02. The biggest movers out of the main currencies have been AUD-JPY and NZD-JPY, crosses which are directionally sensitive to China-related sentiment swings. AUD-JPY has lifted back above 76.00 after yesterday printing a four-month low at 75.73. Elsewhere, EUR-USD has settled back in the lower 1.1200s after yesterday posting a two-week high at 1.1263. Regarding the U.S. and China situation, there is a thread of conjecture in market narratives that the two sides will eventually find a win-win solution, especially if higher tariffs have an increasingly evident impact on the two economies. Beijing had toughened its stance after seeing Trump's pressuring the Fed to loosen monetary policy as a sign of weakness.

    [EUR, USD]
    EUR-USD has settled back in the lower 1.1200s after yesterday posting a two-week high at 1.1263. How the Dollar performs during what we assume will be a new phase of heightened trade tensions between the U.S. and China will be a key determinant of EUR-USD's directional bias. If previous episodes of tensions over the last year are anything to go by, the U.S. currency may continue to firm against the Euro, as it may be apt to perform as a liquid safe haven currency during phases of risk-off positioning in global markets. As for the Euro, we see little scope for sustained gains given the Eurozone's problems (sputtering growth, instability in Italy), and, overall, retain a bearish view of EUR-USD. The pair has resistance at 1.1264-65, while support comes in at 1.1150-55.

    [USD, JPY]
    The Japanese currency has softened today amid a modest correction in risk-off positioning in forex markets, which has been concomitant with a 0.4% rebound in S&P 500 futures after the cash version of the index closed on Wall Street with a 2.4% loss. Asian equity markets are mostly showing declines, though most have pared steep losses seen in early trading. Both U.S. and China have given mollifying remarks to investors. China's State Councillor Wang Yi said earlier that both sides that "the ability and wisdom to resolve each other’s reasonable demands, and in the end reach a mutually beneficial, win-win agreement." President Trump for his part said that he will meet with President Xi at the late-June G20 summit, while Treasury Secretary Mnuchin stated that talks with China remain ongoing. At the same time, the Trump administration let in be known that it is preparing to slap tariffs on remaining Chinese imports. USD-JPY lifted back to the mid-to-upper 109.00s, up from the three-month low seen yesterday at 109.02. The biggest movers out of the main currencies have been AUD-JPY and NZD-JPY, crosses which are directionally sensitive to China-related sentiment swings. AUD-JPY has lifted back above 76.00 after yesterday printing a four-month low at 75.73. Assuming things are likely to get worse before then get better with regard to U.S and China trade relations, the Yen would seem likely to appreciate. USD-JPY has support at 109.00-02, and resistance at 110.05-08.

    [GBP, USD]
    Sterling has come back under pressure, posting a two-week low versus the Dollar while foraying into eight-week and four-month lows, respectively, against the Euro and Yen. Cable's low so far is 1.2935, having declined quite sharply from the early May peak at 1.3176, which is the loftiest point reached over the last six weeks. Prime Minister May's government and the Labour Party are looking unlikely to reach an accord on a Brexit compromise, while the newly created Brexit Party, which supports leaving the EU without a deal, has taken a strong lead in polls ahead of the May-23 elections for the EU Parliament. There has also been increasing signs that prolonged political uncertainty has been having a deleterious impact on the UK economy, particularly in business investment. Cable has resistance at 1.2967-70, and support at 1.2904-05.

    [USD, CHF]
    EUR-CHF dove to a one-month at 1.1288 before finding a toehold and lifting back above 1.1300. This dive yesterday came amid renewed risk-off position in global markets as tensions between the U.S. and China on trade ratcheted higher, which rekindled the Franc's hitherto latent safe haven appeal, despite the SNB's -0.75% deposit rate. EUR-CHF has resistance at 1.1320-23.

    [USD, CAD]
    USD-CAD has consolidated towards the upper reaches of the recent range, above 1.3450 after rebounding from the two-week low seen at 1.3388 last Friday following the bearish combo of soft U.S. April CPI data and forecast-beating strength in Canada's April employment report. Yesterday's bout of risk aversion in global markets, with investors bracing for a new phase of impasse and higher tariffs on the U.S.-China trade front, saw the Canadian Dollar, like its Dollar bloc brethren, come under pressure. We continue to expect USD-CAD to revisit, and break above, its trend peak at 1.3521. Support comes in at 1.3400-05.

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