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By XE Market Analysis April 26, 2018 7:12 am
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    XE Market Analysis: North America - Apr 26, 2018

    The dollar was showing modest net declines on the day as of the early European PM session, giving back gains seen during the pre-London session in Asia, when the greenback posted fresh trend highs versus the euro and yen, among other currencies. The Swedish krone was a notable mover after the Riksbank pushed back the timing of its expected first tightening of the cycle. The Scandinavian currency dove over 0.5% to its lowest levels against the euro since December 2009. EUR-USD was choppy ahead of the ECB policy announcement. The pair printed a new eight-week low at 1.2156, surpassing the Tokyo-session low by 3 pips, before flipping back to the 1.2170-80 area. USD-JPY rose of an eighth consecutive day in making an 11-week high at 109.46.

    [EUR, USD]
    EUR-USD was choppy ahead of the ECB policy announcement. The pair printed a new eight-week low at 1.2156, surpassing the Tokyo-session low by 3 pips, before flipping back to the 1.2170-80 area. Recent losses have been driven mostly by dollar outperformance, underpinned by the mix of looser U.S. fiscal policy and Fed tightening, but market participants will still be paying close attention to the ECB's guidance today. Policy settings are widely expected to remain on hold, and we expect policy guidance to remain unchanged, keeping a phase-out of QE this year in play while refraining from making a commitment to a sustained adjustment amid persisting benign inflation. Such an outcome should maintain EUR-USD's nascent downtrend. A key 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. Resistance is at 1.2245.

    [USD, JPY]
    USD-JPY rose of an eighth consecutive day in making an 11-week high at 109.46. The move reflected ongoing dollar strength, although the yen has been among the leaders of the underperforming currencies over the last week, too. The 14-day RSI momentum indicator is presently over 76.04, above the 70.0 level that notifies that the market has reached overbought conditions relative to 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% this week and the BoJ's continued pegging of the 10-year JGB yield to near 0.0% has been fundamentally underpinning USD-JPY. This 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. China said today that it will be cutting the levy on imported cars to about 10-15% from 25% currently. We have been advising following the trend. USD-JPY trend support comes in at 108.88-90.

    [GBP, USD]
    Cable has remained heavy but above the week's low seen on Monday at 1.3917, contrasting to the fresh trend lows EUR-USD has seen, with the pound having concurrently posted moderate gains versus the euro and other currencies, faring better this week after underperforming last week. Better than expected government borrowing data out of the UK earlier in the week was something of a tonic, with the government having previously pledged to up spending should there been lower than expected deficit. We anticipate the pair will trade steady-to-lower into the May 10th BoE monetary policy decision. The BoE will also be publishing its latest quarterly inflation report, with updated inflation and growth forecasts, where we expect a downward nudge in the CPI prognosis. After a run of sub-forecast key UK data -- specifically retail sales, wages and inflation -- and BoE Governor Carney's less-than-hawkish remarks of last Thursday, sterling markets have settled to pricing in a 40% probability for a May hike, down from 65% before Carney's interjection (according to Reuters calculations).

    [USD, CHF]
    EUR-CHF has entered a consolidative phase after making a 39-month last Friday at 1.2005. The cross ebbed to a seven-session low at 1.1926 this week before finding a footing, subsequently rebounding 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, posting a three-week high of 1.2897 yesterday. 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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