Home > XE Currency Blog > XE Market Analysis: North America - Jul 17, 2018

AD

XE Currency Blog

Topics5566 Posts5611
By XE Market Analysis July 17, 2018 7:20 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 3748
    XE Market Analysis: North America - Jul 17, 2018

    The Dollar remained on a softening tack against most currencies, with the Yen remaining the principal exception, though the U.S. currency managed to pare declines into the New York interbank open. EUR-USD posted a four-session high of 1.1744, and EUR-JPY clocked a two-month high. USD-JPY settled in the in the lower 112.00s after edging out a two-session high of 112.57. Japanese markets reopened today after yesterday's holiday, and the Nikkei 225 closed with a 0.44% gain. The NZ Dollar rallied on the back of perky inflation data, with New Zealand core CPI lifting to a seven-year high rate of 1.7% y/y. NZD-USD rallied over 0.5% to a five-session peak of 0.6840. Cable posted an intraday peak of 1.3268 before retreating under 1.3250, leaving yesterday's peak at 1.3293 untroubled. UK labour data came in near expectations, leaving the door open to a probably BoE rate hike in August but at the same time not making it a done deal. BoE Governor Carney, meanwhile, warned of "big economic consequences" to the economy in the event of a no-deal exit from the EU during parliamentary testimony, though he stressed that it would be "premature" for the central bank to make judgements on the government's recently publish policy document on Brexit, and he also emphasized that the UK banking sector was appropriately capitalised for a cliff-edge Brexit scenario. The Australian Dollar saw modest underperformance after the RBA minutes to the early-July policy meeting highlighted concerns about a prolonging Sino-U.S. trade war.

    [EUR, USD]
    EUR-USD lifted to a four-session high of 1.1744, with gains once again being driven by broader selling of dollars. We still retain an overall bearish view of EUR-USD based on strong U.S. economic growth and the Fed's tightening course, while any move from Trump to follow-through on hits threats to tariff car imports -- which he looks to be gearing up for, describing the EU as a "foe" over the weekend -- would presumably be negative for the Euro relative to the Dollar. EUR-USD has support at 1.1695-1.1700.

    [USD, JPY]
    USD-JPY settled in the in the lower 112.00s after edging out a two-session high of 112.57. The Yen has weakened against most other currencies, tracking broader dollar declines. EUR-JPY, for instance, has lifted to fresh two-and-a-half-month highs. Japanese markets reopened today after yesterday's holiday, and the Nikkei 225 closed with a 0.44% gain. A report from last Friday that the BoJ will likely cut its long-term inflation projections, according to unnamed sources cited by Reuters, has continued to resonate. The sources suggested that the BoJ will concede that CPI will likely remain below the 2% target for as long as three more years, highlighting structural factors that are capping inflationary price pressures. The BoJ meets on policy on July 30-31, when a quarterly revision of inflation and growth forecasts will also be published. This story reaffirms the underlying bullish credentials for USD-JPY, though the risk from trade wars has been maintaining a safe haven premium in the yen. USD-JPY has support at 111.70-71, resistance at 113.38-40.

    [GBP, USD]
    The Pound lifted in the wake of the UK labour data, though follow-through buying proved to be limited after BoE Governor Carney warned of "big economic consequences" to the economy in the event of a no-deal exit from the EU during parliamentary testimony. Carney did stress that it would be "premature" for the central bank to make judgements on the government's recently publish policy document on Brexit, and he also emphasized that the UK banking sector was appropriately capitalised for a cliff-edge Brexit scenario. UK labour data came in near expectations, with unemployment remaining at 4.2% in May, which is the joint lowest rate since 1975, and average earnings coming in with nominal increases of 2.5% y/y and 2.7% y/y in the ex- and with-bonus figures, respectively, in the three months to May. The data should maintain expectations for the BoE on course for a rate hike in August, with inflation-adjusted incomes growing modestly, though at the same time the numbers are strong enough to make a tightening on August 2 a done deal just yet (the OIS market has been pricing in about 70% probability for a 25 bp in the repo rate in August). Cable posted an intraday peak of 1.3268 before retreating under 1.3250, leaving yesterday's peak at 1.3293 untroubled. Given the apparent disorderly final phase of the Brexit process we retain a bearish view of Sterling. Cable has resistance at 1.3281-82 and 1.3293-95, levels that encompasses a daily high and the present situation of the 50-day moving average.

    [USD, CHF]
    EUR-CHF has settled back under 1.1700, leaving yesterday's eight-week high at 1.1714. 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 commáents 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 ebbed to a four-session low of 1.3110, driven lower by general weakness in the U.S. Dollar, and despite the sharp retreat in oil prices yesterday and in recent sessions. The BoC hiked interest rates by 25 bp last Wednesday, and guided markets for tighter monetary policy to keep inflation near target met expectations, though the statement emphasized a "gradual approach, guided by data." USD-CAD has support at 1.3087-90, which encompasses the current position of the 50-day moving average, and resistance at 1.3146-68.

    Paste link in email or IM