Home > XE Currency Blog > XE Market Analysis: North America - Jul 09, 2018

AD

XE Currency Blog

Topics5720 Posts5765
By XE Market Analysis July 9, 2018 7:10 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3864
    XE Market Analysis: North America - Jul 09, 2018

    The dollar traded softer against most currencies as markets continued to digest Friday's U.S. jobs report, the robustness of which lifted global equity markets (taking investors attention off trade protectionism concerns for now) while keeping the Fed tightening expectations at bay (due to the benign wage growth component). The dollar lost ground to most emerging market currencies, which were aided by a firmer yuan today, and lost over 0.5% to the Australian dollar, which has outperformed among the main currencies. EUR-USD gained for third consecutive session, posting a fresh three-week high at 1.1781. USD-JPY continued to narrowly orbit the 110.50 level, which has been the case for several sessions now. BoJ Governor Kuroda said that central bank will remain committed to ultra-accommodative monetary policy, including yield-curve control, until inflation hits the 2% target, which was too boilerplate to impact markets. Cable lifted to a three-week high of 1.3327, and the pound also gained against the euro and yen, among other currencies as markets reacted to the soft Brexit approach the government decided on on Friday.

    [EUR, USD]
    EUR-USD has rallied for a third consecutive session, posting a fresh three-week high at 1.1781. A risk-on revival in global asset markets following the solid U.S. jobs report coupled with a run of encouraging data releases out of the Eurozone, have underpinned the pairing. Despite recent gains, 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, curtailing directional commitment.

    [USD, JPY]
    USD-JPY has continued to narrowly orbit the 110.50 level, which has been the case for several sessions now. BoJ Governor Kuroda spoke earlier, repeating that the central bank will remain committed to ultra-accommodative monetary policy, including yield-curve control, until inflation hits the 2% target. Stock markets in Asia rallied, with investors' concerns about trade protectionism mollified, for now, by Friday's solid U.S. jobs report. USD-JPY remains in a 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 has outperformed most currencies so far today, presently showing an average 0.3% gain versus the dollar, euro and yen, as of the late London AM session. Only the Australian dollar is stronger today out of the currencies we keep tabs on. The reason is that the British government, after more than two years since the vote-to-leave the EU, finally worked out what it wants from a post-Brexit deal with the union, hammered out in a climactic Cabinet meeting on Friday, which saw the hard Brexiteers give up ground to reach a compromise. Cable and GBP-JPY lifted to respective three-week highs at 1.3362 and 147.56, while EUR-GBP dipped to two-session low of 0.8813. We don't expect that the Brexit discount the pound is trading at, which we estimate to be around 10-12% in trade-weighted terms, will unwind much as there remain significant uncertainties, such as the fact that it looks doubtful that the EU will agree to the free market for goods that the UK government is wanting, and it remains uncertain how effective the proposed "frictionless customs arrangement" will be, and, related to these, how the politically charged Irish border issue will be resolved. Cable has resistance at 1.3390-92.

    [USD, CHF]
    EUR-CHF last week 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 firmed up a little after posting a three-week low at 1.3069, which extended the correction from a one-year high that was pegged at 1.3387 in late June. Expectations for the BoC to hike rates this week, along with the big surge in oil prices have buoyed-up the Canadian dollar. We expect the BoC to hike interest rates on Wednesday by 25 bp, which would take the overnight target rate to 1.50%. The accompanying monetary policy report should be consistent with additional rate increases, though at a gradual pace. USD-CAD has support at 1.3053-55, and resistance at 1.3129-30.

    Paste link in email or IM