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By XE Market Analysis July 4, 2019 6:58 am
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    XE Market Analysis: North America - Jul 04, 2019

    The Dollar majors have been directionally uneventful with U.S. markets closed today and participants hunkering down ahead of tomorrow's U.S. jobs report. EUR-USD down shifted back to the 1.1280 area after pressing to a 1.1295 high during the pre-London session in Asia, leaving yesterday's peak at 1.1311 unchallenged. USD-JPY remained within the range seen yesterday, still buoyant but bereft of impetus for a challenge of yesterday's high at 107.88. Most Yen crosses have seen a similar price pattern, though AUD-JPY managed to edge out a two-session peak at 75.92. Confirmation that the U.S. and China will resume trade negotiations next week had given the Aussie a bid during Sydney trading, albeit a brief one. Cable found a footing after three straight down days, which yesterday culminated in a 15-day low at 1.2557. The pair has since taken root around 1.2575-90. EUR-GBP similarly came to a directional halt below the six-day high seen yesterday at 0.8990, which is just 2 pips short of the six-month peak that was seen last week.

    [EUR, USD]
    EUR-USD found a footing after diving to a two-week low at 1.1268 during the early London session as markets there took a turn in reacting to the news that IMF's Lagarde will become the new head of the ECB, replacing Mario Draghi. Lagarde in her position at the IMF repeatedly backed and called for ongoing or further ECB policy support, although partly at play is a degree of relief that the hawkish-leaning Bundesbank President Weidmann hasn't become the central bank's new boss. We expect a continued neutral-to-declining bias over the coming phase for EUR-USD. Bigger picture, the pairing has been in a bear trend since early 2018, though downside momentum has abated markedly in recent months, with a rough equilibrium looking to have established. Resistance comes in at 1.1344-47. A relatively big back of data is due out of the U.S. today, where markets will close early ahead of tomorrow's public holiday.

    [USD, JPY]
    USD-JPY remained within the range seen yesterday, still buoyant but bereft of impetus for a challenge of yesterday's high at 107.88. Most Yen crosses have seen a similar price pattern, though AUD-JPY managed to edge out a two-session peak at 75.92. Confirmation that the U.S. and China will resume trade negotiations next week had given the Aussie a bid, albeit a brief one. USD-JPY looks to have entrenched itself in a rough 106.50-108.50 range. Resistance comes in at 108.04-07.

    [GBP, USD]
    Cable found a footing after three straight down days, which yesterday culminated in a 15-day low at 1.2557. The pair has since taken root around 1.2575-90. EUR-GBP has similarly come to a directional halt below the six-day high seen yesterday at 0.8990, which is just 2 pips short of the six-month peak that was seen last week. This week's June PMI survey data, which saw the June composite PMI fall sharply to 492 from May's 50.7, painted a picture of a stagnating economy, brought on by both prolonged Brexit-related uncertainty and slowing economic activity in continental Europe. As for Brexit, the news flow has remains quiet in terms of substantive developments. That will change as soon as the new prime minister, most likely no-deal-Brexit-if-necessary Boris Johnson, takes up the reigns (which should be by mid month). We estimate that the UK currency has been trading with a 10-15% trade-weighted Brexit discount since the vote to leave the EU in June 2016, and don't see much scope for this to reverse anytime soon. Cable has resistance at 1.2610-13.

    [USD, CHF]
    EUR-CHF has found a footing after coming under signifiant pressure last week, in the wake of ECB President Draghi's eyebrow raising dovish shift, which has been the most notable of a growing chorus of dovish voices on the central bank's governing council. The cross printed a 23-month low at 1.1057 before recouping to levels around 1.1100. The advance of the Franc against the Euro will doubtlessly be displeasing to the SNB (the EUR-CHF cross being a good proxy on the Swiss currency's trade weighted value). The SNB restated at its quarterly policy review this month that downside risks to the economy have increased, and that the overall policy setting "remains as expansionary as before." The central bank also nudged its inflation forecast lower, now expecting CPI to average just 0.6% y/y this year, 0.7% in 2020, and 1.1% y/y in 2021. With the ECB increasingly under pressure to ease policy again, the SNB remains eager to counter Franc appreciation, especially against the Euro. Assuming the ECB remains on the path of further monetary policy easing, we would expect EUR-CHF retain a declining bias. The SNB's -0.75% deposit rate and threat of tactical intervention hasn't been sufficient to arrest recent appreciation of the Franc.

    [USD, CAD]
    USD-CAD printed a fresh eight-month low at 1.3055 yesterday. News of President Trump's Fed nominees provided a cue for markets to sell the U.S. currency, as the candidates are likely to be sympathetic to the president's proclivity for looser monetary policy. This offset any bullish impact of this week's 6%-plus slide in oil prices on USD-CAD.The pair has now posted lower lows for five consecutive weeks, a feat that was last achieved in June-July 2017. Given indications portending downside risk to Friday's U.S. jobs report, there may be more to come in this bear phase. Resistance comes in at 1.3128-30.

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