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By XE Market Analysis July 3, 2018 7:34 am
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    XE Market Analysis: North America - Jul 03, 2018

    The dollar arrived at the early European PM session at near net unchanged levels against the euro and yen, while the dollar bloc currencies and sterling outperformed, the former group amid a lift in global stock markets and the latter after a forecast-beating construction PMI release out of the UK. EUR-USD settled in the mid 1.1600s after printing a low of 1.1591 yesterday. USD-JPY posted a fresh six-week high of 111.13 during the Tokyo session before settling lower. Other yen crosses also saw a similar price action with the backdrop of steadying global stock markets seeing the yen come under some pressure. China's PBoC once again allowed the yuan to weaken, with the USD-CNY rate this time rising to an 11-month high above 6.6700. AUD-USD gained over 0.8% in posting a high at 0.7400, extending a rebound from yesterday's 18-month low at 0.7310. The Aussie rallied today partly amid the rebound in stock markets and partly on the RBA's policy statement, which, while remaining distinctly neutral overall, was perhaps a little more sanguine than some market participants had expected with regard to the risks stemming from a slower, tariff-afflicted Chinese economy. The RBA left the cash rate at 1.50%, as had been widely anticipated.

    [EUR, USD]
    EUR-USD settled around the 1.1650 mark after trading on both sides. The range so far today has remained within yesterday's range. The pair is over a big figure from last week's lows, having been underpinned by the passing of potential political uncertainty in Germany and after EU members last week made an agreement on immigration (to shore up external borders and create screening centres for migrants). This reduced the what could be called the existential-threat discount built into the euro, as the deal should placate the Italian populist government and broader Eurosceptic, populist movements across the region. Bigger picture, EUR-USD remains in broadly consolidative phase after a downtrend from mid-April levels above 1.2400. The range over this phase has been 1.1508 to 1.1851. More of the same looks likely for now.

    [USD, JPY]
    USD-JPY posted a fresh six-week high of 111.13 during the Tokyo session before settling lower. Other yen crosses also saw a similar price action with the backdrop of steadying global stock markets seeing the yen come under some pressure. China's PBoC once again allowed the yuan to weaken, with the USD-CNY rate this time rising to an 11-month high above 6.6700. In the bigger picture, USD-JPY remains in a broadly choppy, sideways range, which has been unfolding over the last couple of months. More of the same looks likely, with bullish fundamentals (Fed versus BoJ policy paths) being offset by the risks stemming from a deepening and prolonging trade way among major economies, a backdrop that has the Japanese currency in demand as a safe haven.

    [GBP, USD]
    Sterling rallied following the release of an above-forecast June construction PMI report, which together with yesterday's manufacturing PMI, suggests that the UK economy has stabilised after recent weakness, keeping alive expectations for the BoE to hike the repo rate in August. Cable's high is 1.3198, which is near the midway point of the range that's developed over the last two weeks. The low yesterday was 1.3095, and a seven-month low was printed last Thursday at 1.3050. We remain somewhere between bearish and neutral of sterling at prevailing levels. The Brexit negotiation process, which has just six negotiating weeks left, is coming to a head amid a sense that risk of the UK leaving the EU without a new trade-deal has gone from highly unlikely to increasingly-less-vaguely palpable.

    [USD, CHF]
    EUR-CHF has become entrenched in the mid 1.1500s. SNB's Maechler said late last month that the franc "remains highly valued" despite the depreciation seen over the last year, arguing that "we are in extraordinary times and we are using unconventional measures. The comments affirm that the SNB is firmly on hold, with Maechler admitting that the SNB's monetary policy room for manoeuvre is "necessarily" affected by the actions of ECB and Fed.

    [USD, CAD]
    USD-CAD has steadied after tumbling sharply late last week, to the lower 1.31s, falling from a one-year high that was pegged at 1.3387 last Wednesday. BoC Governor Poloz showed himself to be in want of further rate hikes in a speech and Q&A session mid last week. The big surge in oil prices of late has also been a prop for the Canadian dollar. USD-CAD has resistance 1.3210-11.

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