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By XE Market Analysis July 5, 2018 6:36 am
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    XE Market Analysis: North America - Jul 05, 2018

    The dollar has traded mixed, while the euro has outperformed. EUR-USD posted a seven-session high of 1.1720 before correcting to levels around 1.1680, levels that still leave the pair up by 0.2% on the day, and by 1% over the last week. Other euro crosses have also been buoyant, particularly EUR-JPY which was showing a gain of over 0.5% in making a two-day peak at 129.51. A run of good data out of the Eurozone has underpinned the common currency. German manufacturing orders, released today, were much stronger than expected with growth of 2.6% m/m, which follows yesterday's unexpected upward revisions to final Eurozone June services and composite PMIs. USD-JPY continued to orbit the 110.50 level, shifting upwards to the 110.70 area in the latest phase, with the yen retreating amid a backdrop rallying stock markets. The pair remains in a broadly choppy, sideways range, which has been unfolding over the last couple of months. Cable tracked EUR-USD higher and printed a seven-session high at 1.3267. USD-CAD traded in a narrow range around 1.3150, continuing the consolidation after pulling back from the one-year high that was seen last week at 1.3387.

    [EUR, USD]
    EUR-USD ran into a wall of selling above 1.1700, managing to post a seven-session high of 1.1720 before correcting to levels around 1.1680. The pair still remained up by 0.2% on the day, and by 1% over the last week. EUR-JPY and other euro crosses are also buoyant. A run of good data out of the Eurozone has underpinned the common currency. German manufacturing orders, released earlier, were much stronger than expected with growth of 2.6% m/m. Yesterday saw unexpected upward revisions to final Eurozone June services and composite PMIs. Last week's agreement among EU members on immigration (to shore up external borders and create screening centres for migrants), along with Merkel's compromise on border controls, to preserve the governing coalition in Germany, have reduced the existential-threat discount that had been built into the euro, on the view that this 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. A major "known unknown" is to how deep and how prolonged the Trump-led trade war with major economies will be, and what economic and currency market fallout this will cause, and this is keeping directional commitment at bay for now.

    [USD, JPY]
    USD-JPY has continued to orbit the 110.50 level. The pair 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]
    Cable printed a fresh seven-session high at 1.3267, since pulling back to the 1.3250 area, but still showing a 0.2% gain on the day. Sterling was buoyed by yesterday's release of an above-forecast UK services PMI survey, completing a set of June PMI surveys that painted a picture of rekindled expansion in the economy, with cost pressures rising and some evident tightness in labour markets. The data maintains our call for the BoE to continue with its gradualist tightening at the August MPC meeting. Despite this, 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 having gone from highly unlikely to possible. Cable has resistance at 1.3290-91.

    [USD, CHF]
    EUR-CHF has lifted above 1.1600 for the first time in three weeks amid a broader run higher of the common currency. 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 settled in the mid 1.31s after correcting from a one-year high that was pegged at 1.3387 last Wednesday. Expectations for the BoC to hike rates next week along with the big surge in oil prices have buoyed-up the Canadian dollar. USD-CAD has resistance 1.3210-11. Upcoming Canadian data include the June employment report (Friday), which we expect to rise 25.0k after the 7.5k dip in May and 1.1k dip in April. The unemployment rate is expected to hold at a 40-year low 5.8%. Trade data (also due Friday) is expected to show the deficit widen to -C$2.2 bln in May from -C$1.9 bln in April. Data in line with our estimates would support our expectation that the BoC will lift rates 25 bp to 1.50% at the July-11 announcement.

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