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By XE Market Analysis April 25, 2018 6:41 am
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    XE Market Analysis: North America - Apr 25, 2018

    The dollar remained buoyant, with the 10-year T-note yield having yesterday touched the 3.0% leve for the first time since early 2017. The narrow trade-weighted index (DXY) posted at new trend high of 91.09, a level not seen since the first week of January. EUR-USD drifted back under the 1.2200 level, although so far leaving yesterday's three-month low at 1.2181. USD-JPY lifted back above 109.00 from yesterday's correction low at 108.54, posting a new 10-week peak at 109.27. USD-JPY has been trending higher for a month now, from sub-105.00 levels. The dynamic has been concomitant with rising U.S. yields, with looser fiscal policy having given added underpinning to Fed tightening expectations. This comes with the BoJ continuing to peg JGB 10-year yields near 0.0%. Elsewhere, AUD-USD, already reeling in the wake of yesterday's sub-forecast CPI data out of Australia, extended to a fresh four-month low at 0.7562..

    [EUR, USD]
    EUR-USD has remained heavy, drifted back to the 1.2200 area, although so far leaving yesterday's three-month low at 1.2181 untroubled. Signs of weakening growth momentum in the Eurozone economy has, juxtaposed to looser U.S. fiscal policy and Fed tightening expectations, have been driving EUR-USD lower, although ECB's Vasiliauskas today suggested that that hawkish camp among his fellow policymakers has been growing, while his colleague Mersche said that inflation hasn't weakened as much as the ECB expected. The remarks from the ECB members raises the risk that the ECB will still commit to the end of QE earlier than has been expected. The central bank meets on policy tomorrow. A key EUR-USD level to the downside is 1.2154, which marks the low point of the broadly sideways range that's been play for nearly three months now, while an initial resistance level is at 1.2245.

    [USD, JPY]
    USD-JPY corrected to a 108.98 low before finding bids after earlier posting a fresh 10-week high at 109.27. The new high was seen amid a broader bout of dollar gains, evidenced by with EUR-JPY, AUD-JPY and other yen crosses fairing less well, and with the dollar having concurrently posted gains versus the euro and most other currencies. The 14-day RSI momentum indicator is presently at 74.4, above the 70.0 level, notifying that the market has reached overbought conditions relative to the historical price action norms (efficient market advocates would argue that these indicators are right until they're wrong). The ascent of the 10-year T-note yield to 3% and the BoJ's continued pegging of the 10-year JGB yield to near 0.0% has been fundamentally underpinning USD-JPY, which is a theme that has been true for over the last month during which time geopolitical risks and trade war concerns have abated sufficiently to allow the yen's safe haven premium to unwind. We have been advising following the trend. USD-JPY trend support comes in at 108.40-42.

    [GBP, USD]
    The pound has been faring better so far this week after underperforming last week, making a three-day high versus the euro while recouping above 1.3950 against the dollar. Better than expected government borrowing data out of the UK yesterday was something of a tonic, with the government having previously pledged to up spending should there been lower than expected deficit. Cable broke a run of six consecutive down sessions. We anticipate the pair 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 on May 10th 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." Cable has resistance at 1.4025, and support at 1.3917-20.

    [USD, CHF]
    EUR-CHF has come off the boil since making a 39-month last Friday at 1.2005. The cross ebbed to a six-session low at 1.1926 yesterday, though subsequently rebounded to the upper 1.1900s. 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 has remained buoyant since posting a three-week high of 1.2861 during Tuesday's Asian session. The move extended a rebound from last Wednesday's two-month low at 1.2527. A correction in oil prices, which have descended back under $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 and associated rise in U.S. Treasury yields, 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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