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By XE Market Analysis July 8, 2019 10:33 am
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    XE Market Analysis: North America - Jul 08, 2019

    The Dollar has consolidated gains seen following Friday's post-jobs report moderation in Fed easing expectations. EUR-USD has posted a narrow range around 1.1220-30 so far, while Cable, AUD-USD and other pairings saw a similar price action. The Yen unwound gains seen during the Tokyo session as stock markets across Asia came under pressure. USD-JPY lifted back to the mid 108.0s after setting a low at 108.28, remaining comfortably within its Friday range. The pair has declined in right of the last 12 weeks, though the last two have been up weeks. Cable settled after diving to a six-month low on Friday at 1.2481 following the U.S. jobs report. EUR-GBP remained buoyant, but markets have still lacked the muster for a test of the recent six-month high at 0.6992. USD-CAD settled around 1.3080, looking poised to challenge the eight-month low seen last week at 1.3037.Turkey's Lira span lower on news of the central bank chief's sacking by President Erdogan, which is the latest step of the latter to undermine the independence of the bank and credibility of Turkey's economic policy. This comes just as Turkey is taking delivery of a Russian missile defence system, which is likely to invite U.S. sanctions. The Lira dove 2.1% to its low versus the Dollar, unwinding gains seen over the last week.

    [EUR, USD]
    EUR-USD has posted a narrow range around 1.1220-30 so far today, consolidating the losses from the upper 1.1200s that were seen on Friday amid the tempering in Fed easing expectations in light of the June U.S. employment report. Aside from the flow and then ebb in Fed rate cut expectations, in the Euro's case market narratives have been centering on mostly weak data and the dovish credentials of ECB boss designate, Lagarde, which last week tipped Bund yield curve into negative right out to the 20-year maturity. We anticipate further declines in EUR-USD. Support at 1.1205-07, and resistance at 1.1285-88.

    [USD, JPY]
    The Yen unwound gains seen during the Tokyo session as stock markets across Asia came under pressure. USD-JPY lifted back to the mid 108.0s after setting a low at 108.28. The pair has remained comfortably within its Friday range throughout, consolidating after rallying from sub-108.0 levels on the back of the above-forecast U.S. employment report. USD-JPY has declined in right of the last 12 weeks, though the last two have been up weeks as markets moderate Fed easing expectations. Support comes in at 107.94-95.

    [GBP, USD]
    Cable posted a 16-day low at 1.2549, making this the fourth lower-low producing day out of the last five and setting up a second consecutive down week. A combo of Sterling underperformance and Dollar outperformance has been at play today, coming as the U.S. June jobs report looms. EUR-GBP concurrently lifted back above 0.6970, drawing back in on the one-week high seen on Wednesday, and last week's six-month high, at 0.8990 and 0.8992, respectively. A 0.3% m/m contraction in the Halifax measure of UK house prices for June followed PMI survey data for the same month that laid bare the impact of both prolonged Brexit-related uncertainty and slowing economic activity in continental Europe. The June composite PMI fall sharply to 49.2 from May's 50.7, signalling an economy in contraction. 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 put in a couple of weeks of steady, range-bound trading after dropping sharply in mid June as markets adjusted to increased prospects for the ECB to return to the dovish policy tap. The cross printed a two-year low at 1.1057 before recouping to levels around 1.1100. The advance of the Franc against the Euro will 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 last 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 remained settled around 1.3080 after turning on Friday following the release of the U.S. and Canadian jobs reports for June, which cast a net bearish impact on the pairing. The pair has been in a distinct bear trend since late May, and has declined in four of the last five weeks. We expect more is to come. Trend resistance comes in at 1.3091-94.

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