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By XE Market Analysis May 15, 2018 3:03 am
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    XE Market Analysis: Europe - May 15, 2018

    The dollar has rebounded from correction lows that were seen against many currencies yesterday. EUR-USD has cleared yesterday's and posted a two-day low at 1.1910, extending declines from yesterday's high at 1.1996. USD-JPY has lifted toward 110.00, returning focus to recent trend highs at 110.01-03. AUD-USD has fallen to a three-session low, at 0.7503, and USD-CAD to a three-session high, at 1.2822. The lift in the dollar has been concomitant with a rebound in U.S. Treasury yields, with the 10-year T-note yield rising back above 3.0%. Amid this, global stocks are presently taking a downward turn, with S&P 500 futures showing a 0.3% loss and most Asian markets are showing declines. The U.S. ambassador to China warned today that the U.S. and China are "still very far apart" on trade, technology and market access. Oil prices have also found renewed buoyancy on Mideast geopolitical concerns (fallout from U.S. opening its Israeli embassy in Jerusalem, pending U.S. sanctions on Iranian exports, uncertainty about whether the Iranian nuclear deal will survive without the U.S., and what consequences this may have). This backdrop, along with the Fed tightening course, should keep the dollar broadly underpinned.

    [EUR, USD]
    EUR-USD has cleared yesterday's low on route to posting a two-day low at 1.1910, extending declines from yesterday's high at 1.1996. The move has been driven by dollar gains, which have been concomitant with a renewed lift in U.S. Treasury yields. The 10-year T-note yield flipped back above 3.0%. Last week's four-month low at 1.1822 is back in range, though we see EUR-USD as having entered a comparatively stable trading range after tumbling some 4% from mid April through to last week. Support is at 1.1910-12.

    [USD, JPY]
    USD-JPY has lifted toward 110.00, returning focus to recent trend highs at 110.01-03. A rebound in the dollar, which has been concomitant with a rebound in U.S. Treasury yields, with the 10-year T-note yield rising back above 3.0%, has driven the move as market participants focus returns back toward favourable yield differentials of the dollar versus the yen. Incoming remarks by Fed members have reaffirmed that the U.S. central bank remains on a course for continued moderate tightening, despite last week's sub-forecast U.S. CPI data, while a Reuters survey of market economists today found almost half expecting the BoJ to refrain from existing ultra-accommodative monetary policy stimulus until 2020 or later. USD-JPY would need to break and close above recent trend highs and the 200-day moving average, situated at 110.18 presently, to make for what many technically minded traders and investors would think of as a convincing affirmation of the bull trend that's been in evolution since early March.

    [GBP, USD]
    Cable has settled in the mid 1.3500s, above last week's four-month low that was posted last Thursday at 1.3459. The pound has also made gains versus the yen, which trading more neutrally against the euro and other currencies. Last week's unchanged monetary policy decision fro the BoE, the trimming of GDP and CPI forecasts, and the wary-but-still upbeat tone of MPC members, all met expectations, near enough. It didn't produce a buy-on-the-fact response in the forex market, after a month or so of a declining pound as markets priced out near-term prospects for a BoE hike, but neither did it produce sustained selling. Sterling interest rate futures are now pricing in about 60% odds for a 25 bp rate hike by November, and about 85% odds for a such a move by November. We are gunning for an August move. Today's UK labour market report will be a focus, which we expect to show an unchanged jobless rate of 4.2%, a multi-decade low, and fresh evidence of building wage pressures. Cable has support at 1.3500-02.

    [USD, CHF]
    EUR-CHF has settled lower after yesterday edging out a two-week high at 1.1980. We expect the cross to remain broadly underpinned. SNB Vice Chairman Zurbruegg told Schweiz am Wochenended that the franc is still "highly valued" and that the central bank sees "no reason" to give up the negative interest rate or "our willingness to intervene in the foreign exchange market."

    [USD, CAD]
    USD-CAD has found a toehold after posting a three-week low of 1.2719. The disappointing April employment out of Canada, in data release on Friday and which weakened BoC tightening expectations, has helped give the pair a prop, after declining last week amid the surge in oil prices to four-plus year highs. Resistance is at 1.2807-10.

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