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By XE Market Analysis April 11, 2019 7:07 am
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    XE Market Analysis: North America - Apr 11, 2019

    The Dollar majors have mostly been trading with little directional bias. USD-CAD has been an exception, trading over 0.3% higher to a three-day peak at 1.3360, in a move which concomitant with 1%-odd correction in oil prices. EUR-USD, meanwhile, has been plying a narrow range in the upper 1.1200s, matching yesterday's 12-day high at 1.1287 at the highs. The final reading of German March HICP came in unrevised, at 1.4% y/y, as expected. USD-JPY settled near 111.0, above the 12-day low of yesterday, at 110.84. Global stock markets are sputtering once again as high valuations look incongruous with slowing global economic growth, with expectations for a contraction in Q1 corporate earnings in the U.S. also in the mix. The Pound has settled lower after rallying late yesterday on news that the EU agreed to delay Brexit again. Cable pulled back under 1.3100 after leaving a high at 1.3120. Brussels re-stated, for the umpteenth time, that the Withdrawal Agreement would not be reopened for renegotiation. The risk is apparent to most who have been following the Brexit process to far: that the delay won't fix the political gridlock and we simply arrive at October 31 -- already being dubbed the Halloween deadline in the UK media -- in the same state of irresolution as now. This backdrop will likely leave the Pound, which we estimate is still trading with a 10-11% Brexit discount, on a neutral directional footing for now. Focus will now shift to today's U.S. PPI and jobless claims data releases, which we expect to be net bullish for the dollar. We forecast initial jobless claims to rise 3k to 205k (median 211k) in the week-ended April 6, from a 49-year low of 202k in the prior week, while we anticipated PPI at a rate of 2.0% y/m in March, up from 1.9% in the month prior.

    [EUR, USD]
    EUR-USD has been plying a narrow range in the upper 1.1200s, matching yesterday's 12-day high at 1.1287 at the highs. The pair had dropped by some 50 pips yesterday, which left a low at 1.1229, following downbeat remarks by ECB President Draghi following his post-policy meeting press conference, which was followed by perky U.S. CPI data, though the Dollar retraced lower as markets digested that still-benign core CPI reading, which lifted EUR-USD back into the upper 1.1200s. The Fed has pinned its dovish turn in large part on an outlook for soft inflation. The final reading of German March HICP came in unrevised, at 1.4% y/y, as expected. Focus will now shift to today's U.S. PPI and jobless claims data releases, which we expect to be net bullish for the dollar. We forecast initial jobless claims to rise 3k to 205k (median 211k) in the week-ended April 6, from a 49-year low of 202k in the prior week, while we anticipated PPI at a rate of 2.0% y/m in March, up from 1.9% in the month prior, with the core reading seen at 2.4% after 2.5% in February. In the bigger picture, the pairing is in a bear trend, which has been unfolding since February last year, although downside momentum has abated notably in recent months. Support comes in at 1.1228-30, and resistance at 1.1297-1.1300.

    [USD, JPY]
    USD-JPY has settled near 111.0, above the 12-day low of yesterday, at 110.84. In equity markets, Asia bourses flagged as investors mull signs of slowing global growth on the one hand versus accommodative central banks on the other. We expect the bias to remain to the downside, with global stock markets sputtering once again as high valuations look increasingly incongruous with slowing global economic growth, with expectations for a contraction in Q1 corporate earnings in the U.S. in the mix. This backdrop should be conducive of Yen outperformance relative to the other major currencies. USD-JPY has support at 110.84-88.

    [GBP, USD]
    The Pound has settled lower after rallying late yesterday on news that the EU agreed to delay Brexit again. Cable pulled back under 1.3100 after leaving a high at 1.3120. The EU permitted a flexible Brexit delay, limited to October 31. Under the terms, the UK must hold elections for the European parliament on May 23 or else leave on June 1 without a deal, while the UK would be able to leave the EU ahead of the October deadline should a deal be ratified. Brussels re-stated, for the umpteenth time, that the Withdrawal Agreement would not be reopened for renegotiation. The risk is apparent to most who have been following the Brexit process to far; that the delay won't fix the political gridlock and we simply arrive at October 31 -- already being dubbed the Halloween deadline in the UK media -- in the same state as now, without a solution. This backdrop will likely leave the Pound, which we estimate is still trading with a 10-11% Brexit discount, on a neutral directional footing for now. Talks between Prime Minister May's Tory party and Labour on forming a compromise Brexit deal will resume today. Both sides have been talking positively about them, though there has not yet been a breakthrough. Much will depend on whether May will concede by adopting Labour's demand for the UK to remain in the EU's customs union in the post-Brexit future. If she does, she would split the Tory party, which she has not been willing to do thus far (which in large part explains the mess that the Brexit process is in). A large portion of Labour members are also wanting and deal to be subject to a confirmative referendum. If the talks flop, then alternative options will be put to vote in Parliament.

    [USD, CHF]
    EUR-CHF rallied to a 17-day high yesterday at 1.1280, extending the rebound from the eight-month low seen in late March at 1.1162. The rotation higher has tracked gains in EUR-USD. SNB member Maechler said last week that while the Swiss economy remains dynamic and the global economy should remain solid, inflation pressures remain very weak and the environment is fragile, which continues to warrant expansionary monetary policy. The EUR-CHF cross has been seeing choppy directional impulses since the start of the year, often times characterized by bouts of pronounced underperformance in the Swiss franc that have often been accompanied by talk/suspicions of SNB intervention.

    [USD, CAD]
    USD-CAD has settled in the mid 1.3300s after rotating lower over the previous couple of days, concomitantly with new trend highs in oil prices. WTI crude prices on Tuesday printed a five-month high at $64.79, since consolidating. Military tension in Libya have been the latest bullish catalyst, which comes amid a backdrop fo OPEC supply curtailment and U.S. sanctions against Venezuelan and Iranian crude exports. WTI benchmark oil prices are now up by over 40% on the year-to-date, which, if sustained, will be a notable benefit to Canada's terms of trade. USD-CAD printed a 19-day low at 1.3284 on Tuesday. We expect the directional bias will remain to the downside. Resistance comes in at 1.3364-67.

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