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By XE Market Analysis July 6, 2018 7:07 am
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    XE Market Analysis: North America - Jul 06, 2018

    The euro and Australian dollars remain buoyant, the former aided by a continued run of good data out of the Eurozone, while the dollar, along with the yen, traded steady-to-softer. EUR-USD printed a three-week high of 1.1727. A solid 2.6% m/m gain in German industrial production in April data gave a lift to the common currency. USD-JPY has continued to orbit the 110.50 level, today upswinging to a three-day high of 110.78 amid a backdrop of rallying stock markets . Cable has turned lower after posting a high at 1.3253, settling around 1.3230. The 10-day peak that was seen yesterday at 1.3274 has been left untroubled. Market focus will now fall squarely on the U.S. jobs report, where we expect the headline to rise 200k (median 191k) and the unemployment rate to hold steady at 3.8%. Hourly earnings are seen up 0.2% and the average workweek to hold unchanged at 34.5 hours. We seen the report as being positive for the dollar, assuming our forecasts are met, or bettered.

    [EUR, USD]
    EUR-USD printed a three-week high of 1.1727. A solid 2.6% m/m gain in German industrial production in April data, which continued a run of encouraging data out of the Eurozone this week, gave a lift to the euro. Market focus will now fall squarely on the U.S. jobs report, where we expect the headline to rise 200k (median 191k) and the unemployment rate to hold steady at 3.8%. Hourly earnings are seen up 0.2% and the average workweek to hold unchanged at 34.5 hours. We seen the report as being positive for the dollar, assuming our forecasts, or better, are met. In the bigger picture, EUR-USD remains in a 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. This is, for now, keeping directional commitment at bay.

    [USD, JPY]
    USD-JPY has continued to orbit the 110.50 level, today upswinging to a three-day high of 110.78 amid a backdrop of rallying stock markets . 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 has turned lower after posting a high at 1.3253, settling around 1.3230. The 10-day peak that was seen yesterday at 1.3274 has been left untroubled, and the day's range has so far remained comfortably within yesterday's range. Two risk events are up today, the first being the release of the June U.S. payrolls report, and the other being a pivotal meeting of members of the UK government's Cabinet, where a the Prime Minister will finalise her government's Brexit plan. Sterling had taken tumble late yesterday on reports that Germany sees the British PM May's proposal on a post-exit customs arrangement as being "unworkable," so there remains a lot of uncertainty. While this week's UK PMI data have kept the BoE on track to hike the repo rate by 25 bp at August MPC (to coincide with the next quarterly Inflation Report), we continue to take a bearish-to-neutral view of sterling. 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 (the strong consensus, as seen by the flood of warnings from businesses this week, is that such a scenario would be bad for business, and bad for the pound).

    [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. Canadian data arrives today in the form of the June employment report release, 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 is also due, where we expect the deficit to 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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