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By XE Market Analysis April 20, 2018 7:06 am
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    XE Market Analysis: North America - Apr 20, 2018

    The dollar is finishing the week on a firmer footing, posting gains versus the euro and yen, and being aided higher against the pound after BoE Governor Carney walked back hawkish guidance. EUR-USD dropped through recent range lows at 1.2299-1.2307 on route to posting an 11-day low at 1.2293. There didn't appear to have been any specific catalyst, though there is a backdrop fundamental justification in market narratives, with softer Eurozone inflation and ZEW survey data this week having developed the Eurozone economic-slowing theme. USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y. Cable dropped for a fourth consecutive day in posting a two-week low at 1.4036 before finding a toehold. BoE Governor Carney suggested a May hike is not a done deal, describing recent data out of the UK as being "mixed" and repeating the central bank's caveat on Brexit risks. The dollar also posted gains versus the Australian and New Zealand dollars.

    [EUR, USD]
    EUR-USD broke lower today, dropping through recent range lows at 1.2299-1.2307 on route to posting an 11-day low at 1.2293. The aforementioned former range lows now revert as resistance levels. Fresh declines in Cable following relatively dovish remarks by BoE Governor Carney, along with broader dollar firmness, drove the downside move in EUR-USD. There is also backdrop fundamental justification, with softer Eurozone inflation and ZEW survey data having been seen this week by further developing a Eurozone economic-slowing theme. In the bigger view, EUR-USD still remains near the midway levels of a broad consolidation range that's been seen for some two months now, which has followed a 14-month rally phase from sub-1.0500 levels. More of the same seems likely, with the odds for a big-picture breakout seeming low at the present time. Near-term risks look to be skewed to the downside. Key support is at 1.2214-15.

    [USD, JPY]
    USD-JPY nudged out a one-week high at 107.73 during the Tokyo session, coming within 5 pips of last Friday's two-month peak. The move reflected dollar firmness as EUR-JPY and other yen crosses traded flat or modestly lower. In data today, Japanese March CPI came in at the expected 1.1% y/y in the headline reading, while the BoJ-watched core reading ebbed to a 0.9% y/y rate from 1.0% y/y, which underscores the recent, and ongoing, concerns about chronically below-target inflation of Japanese policymakers. The April Tankan survey of business confidence saw the index for large manufacturers decline to a reading of +21 from +28 in March, which is the third consecutive month of deterioration and the lowest reading for this measure since February 2017. The rise in trade tensions got the blame for the worsening in confidence. The non-manufacturers index came in at +36 from +35. USD-JPY has been in a rally phase for some three weeks now. Support is at 107.30-32. We look for a breach of last week's two-month high at 107.78 to reaffirm the developing trend.

    [GBP, USD]
    Sterling dropped for a four consecutive day, this time at the prompt of remarks by BoE Governor Carney, who suggested a May hike is not a done deal during an interview with the BBC, even though he said several rate hikes remain "likely" over the next several years. He described recent data out of the UK as being "mixed," acknowledging softer business surveys and retail sales figures. Carney also replayed the BoE's boilerplate caveat about Brexit risks, saying that the biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with." Hid remarks followed softer than expected inflation, wage and retail sales data this week. With second-round inflationary pressures proving more muted than expected, and in light of currency gains over the last several months, which has been slackening the pressure on UK import prices, we expect the BoE to walk back the hawkish guidance it gave in February at its May MPC meeting, even if still chooses to hike the repo rate by 25 bp to 0.75%. Cable has been trending higher for a year, and is now in the throws of a corrective wave, with trend supports having been breached and momentum indicators turning lower. Resistance is at 1.4145.

    [USD, CHF]
    EUR-CHF has symbolically posted a high above 1.2000 -- symbolic as this is the first time the cross has traded above the SNB's former trading floor (or franc cap), which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. This is the fourth consecutive week, and the sixth out of the last eight weeks, EUR-CHF has rallied, and the cross is now over 12.5% higher from the levels of mid last year. USD-CHF has concurrently ascended into three-month high terrain. The franc has been driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. The central bank's chairman, Jordan, said in Bloomberg interview last night that the franc's declines are in the "right direction" and that the SNB remains "convinced that current monetary policy is still necessary." He had said earlier in the week that "we do not want to provoke an appreciation of the Swiss franc."

    [USD, CAD]
    USD-CAD rebounded to a 10-day high of 1.2676, building on a recovery from Wednesday's two-month low at 1.2527. A correction in oil prices, which have descended to back near the $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of the BoC's mid-week policy meeting, where the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD suggests a weakening in the downside trend that's been developing over the last three weeks, from levels near 1.3100. Resistance is at 1.2700.

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