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By XE Market Analysis July 9, 2019 7:05 am
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    XE Market Analysis: North America - Jul 09, 2019

    The Dollar continued to grind higher. The narrow trade-weighted USD index (DXY) printed a three-week high at 97.59 while EUR-USD pegged a fresh three-week low at 1.1193 and USD-JPY rallied to a five-week high at 108.96. USD-CAD has gained for a second day, this time posting a two-session high at 1.3134. This recovers most of the gains seen in the immediate wake of Friday's release of the U.S. and Canadian jobs reports for June. The tempering in Fed easing expectations following Friday's strong jobs data evidently remains an active dynamic in the currency market, although one that should fade into Fed Chairman Powell's Congressional testimony on Wednesday and Thursday. Cable printed a fresh six-month low at 1.2455, which matches the 15-month low, while EUR-GBP printed a six-month peak seen at 0.8996. A 1.6% y/y contraction in the BRC retail sales figure for June today, which thwarted the consensus forecast for a 0.8% rise, is the latest in a series of underwhelming data out of the UK, providing fresh fuel for the pronounced declining motion the UK currency has been seeing since early May. EUR-GBP has now made this the eighth week out of the last nine where a new higher high has been set.

    [EUR, USD]
    EUR-USD pegged a fresh three-week low at 1.1193 in a move driven by an ongoing advance in the U.S. currency. The tempering in Fed easing expectations following Friday's strong jobs data evidently remains an active dynamic in the currency market, although one that should fade into Fed Chairman Powell's Congressional testimony on Wednesday and Thursday. Aside from the flow and then ebb in Fed rate cut expectations, in the Euro's case market narratives have been centering on 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 while the 10-year yield flirted with -0.400%. EUR-USD has support at 1.1181-83, and resistance at 1.1226-29.

    [USD, JPY]
    USD-JPY rallied to a five-week high at 108.96, driven by a broader USD bid. Asia stock markets pared intraday losses today for the most part, and Japan's Nikkei managed to close with a fractional 0.14% gain. While USD-JPY declined in eight of the last 12 weeks, the last two have been up weeks and this week looks, so far, to make it a third. Support comes in at 108.45-48.

    [GBP, USD]
    Cable printed a fresh six-month low at 1.2455, which matches the 15-month low, while EUR-GBP printed a six-month peak seen at 0.8996. A 1.6% y/y contraction in the BRC retail sales figure for June today, which thwarted the consensus forecast for a 0.8% rise, is the latest in a series of underwhelming data out of the UK, providing fresh fuel for the pronounced declining motion the UK currency has been seeing since early May. EUR-GBP has now made this the eighth week out of the last nine where a new higher high has been set. The Pound has been trading with a 10-15% trade-weighted Brexit discount since the vote to leave the EU in June 2016, and we don't see much scope for this to reverse anytime soon. Last week's June composite PMI fall sharply to 49.2 from May's 50.7, signalling economic contraction and highlighting the impact of prolonged Brexit uncertainty and slowing growth momentum in continental Europe. As for Brexit, the news flow has remained quiet in terms of substantive developments. That will change as soon as the new prime minister, most likely to be the no-deal-Brexit-if-necessary Boris Johnson, takes up the reigns. The UK releases industrial production tomorrow, which has us expecting some rebound-from-weakness, with output seen lifting 1.5% m/m after April's -2.7% figure.

    [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 has gained for a second day, this time posting a two-session high at 1.3119. This recovers most of the gains seen in the immediate wake of Friday's release of the U.S. and Canadian jobs reports for June. The pair has been in a distinct bear trend since late May, and has declined in four of the last five weeks. Trend resistance comes in at 1.3091-94.

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