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By XE Market Analysis April 24, 2018 6:40 am
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    XE Market Analysis: North America - Apr 24, 2018

    The dollar posted fresh highs versus most currencies before most pairings backpedalled to near net unchanged levels. EUR-USD posted a 10-week low at 1.2181 before a bout of broad dollar weakness in the London AM sessions lifted the pair above 1.2215. The low was seen after the release the April German Ifo business conditions index, which declined sharply to a reading of 102.1 in April from 103.3 in the previous month, adding to growing sings of a flagging economic growth momentum in the Eurozone. USD-JPY lifted for a sixth consecutive session, making a 10-week high at 108.91. The gains in USD-JPY have been concomitant with the U.S. T-note yield nearing the 3.0% level, which comes with the BoJ continuing to peg JGB 10-year yields near 0.0%. Thawing relations on the Korean peninsular has also been in the mix, with North Korea's Kim saying today that he would be willing to accept IAEA inspections of nuclear facilities. Cable has seen an intraday high of 1.3961, building on the recovery from 1.3917 trend low that was seen during the Tokyo session. Better than expected government borrowing data out of the UK has been tonic, with the government having previously pledged to up spending should there been lower than expected deficit. AUD-USD clocked a four-month low at 0.7579 following sub-forecast Q1 CPI out of Australian, which ebbed to a rate of 0.4% from 0.6% in Q4.

    [EUR, USD]
    EUR-USD posted a 10-week low at 1.2181 before a bout of broad dollar weakness in the London AM sessions lifted the pair above 1.2215. The low was seen after the release of a newly revamped Ifo business conditions index out of Germany, which now also includes services. The report didn't make nice reading as confidence declined sharply to a reading of 102.1 in April from 103.3 in the previous month, which adding to growing sings of a flagging economic growth momentum in the Eurozone. With the Fed very much remaining on a tightening path, which have been intensified by the loosening of fiscal policy in the U.S., we expect the overall directional bias of EUR-USD to remain to the downside. A key level is 1.2154, which marks the low point of the broadly sideways range that's been play for nearly three months now. A lot of focus will be on ECB guidance at its meeting this week, which we expect to reaffirm the need for an amble degree of stimulus. EUR-USD has an initial resistance level at 1.2245.

    [USD, JPY]
    USD-JPY lifted for a sixth consecutive session, making a 10-week high at 108.91. EUR-JPY is also firmer, though has so far remained below the two-month high it saw last week. The gains in USD-JPY have been concomitant with the U.S. T-note yield nearing the 3.0% level, which has been generating headlines, which comes with the BoJ continuing to peg JGB 10-year yields near 0.0%. Demand for foreign assets by Japanese life insurers has been a factor propping USD-JPY up so far in the new fiscal year, according to market narratives, along with an abatement in concerns about trade tensions and cooling relations on the Korean peninsular. The Nikkei 225 closed 0.86% for the better, more than reversing the moderate loss seen yesterday. In data, March final machine tool orders was confirmed with 28.1% growth. The data is volatile month-to-month, though provides economists with a indication on how capital expenditure is evolving. Japan's final February leading was revised slightly higher, to 106.0, from 105.8 in the preliminary estimate. In other news, North Korea's Kim said that he would be willing to accept IAEA inspections of nuclear facilities. Overall, we advise following the trend in USD-JPY for now. Support comes in at 108.40-42.

    [GBP, USD]
    The pound has been faring better, making a two-day high versus the euro while recovering some lost ground after earlier posting a one-month low against the dollar. Better than expected government borrowing data out of the UK has been tonic, with the government having previously pledged to up spending should there been lower than expected deficit. Cable has seen an intraday high of 1.3961, building on the recovery from 1.3917 trend low that was seen during the Tokyo session. The pair would need to close above 1.3942 to break a run of six consecutive down sessions. We anticipate Cable will trade steady-to-lower into the May BoE monetary policy decision, when the bank will also release its latest quarterly inflation report. There has been a run of sub-forecast UK data (specifically retail sales, wages and inflation), while BoE Governor Carney last week threw a cat among the hawks, damping what had been a near universal expectation for the central bank to deliver a 25 bp hike in the repo rate in May by saying that while there will be "a few interest rate rises over the next few years," he didn't want "to get too focused on timing."

    [USD, CHF]
    EUR-CHF has come off the boil since making a 39-month last Friday at 1.2005. The cross has since ebbed, making a five-session low at 1.1926 today. The franc's return to the 1.2000 level was symbolic "normalisation" that's been afoot in global markets, being the first time the currency has traded below the SNB's former trading cap, which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. EUR-CHF is some 12% higher from the levels of mid last year. The franc was 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 Thursday 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 rallied to a three-week high of 1.2861, extending a rebound from last Wednesday's two-month low at 1.2527. A correction in oil prices, which have descended to back near $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 last Wednesday's BoC policy meeting, as 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 has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.

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