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By XE Market Analysis July 20, 2018 7:24 am
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    XE Market Analysis: North America - Jul 20, 2018

    The Dollar reached the early European PM session at near net unchanged levels, consolidation the declines that were seen in the wake of President Trump voicing his displeasure at the prospect of higher interest rates. Trump's verbal intervention, if that's what it was, has thrown a spanner in the works of many Dollar-bullish prognostications. EUR-USD settled to an oscillation of 1.1650 after capping out at 1.1678, which is a two-day high. USD-JPY found its feet after stocks rebounded in China and Asia, which was seen after the Yuan lifted from lows amid reported purchases by major state banks, apparently in a Beijing-directed move to smooth USD-CNY's assent after the PBoC set a higher reference rate for a seventh consecutive day. The Yen had been firming after the Yuan hit one-year lows, which had rattled stock markets in Asia. The sharp drop in global equity markets seen after China's sudden 2% devaluation of the Yuan in August 2015 has been at the forefront of investors minds lately, so the apparent intervention to cap Yuan losses mollified, at least up to a point, prevailing concerns about competitive devaluation and ratcheting-up trade tensions with the U.S. This fuelled a rebound in the MSCI Asia-Pacific equity index (ex-Japan) to a net gain of 0.55% from a 0.4% loss at the intraday lows. USD-JPY concomitantly recouped to the mid 112.0s after printing a low of 112.21 while AUD-JPY, a relatively high-beta cross which is sensitive to China sentiment, has lifted by nearly 1% from its lows.

    [EUR, USD]
    EUR-USD settled to an oscillation of 1.1650 after capping out at 1.1678 in the wake of President Trump voicing his displeasure at the prospect of higher interest rates. Trump's remarks were from a preview of an interview with CNBC, which will be played in its entirety later today. The President's verbal intervention, if that's what it was, has thrown a spanner in the works of our bearish EUR-USD view, which was rooted on the prognosis for strong U.S. economic growth and the Fed's tightening course. We still see the balance of direction risks as being skewed to the downside for EUR-USD. The still-evolving populist political landscape in Italy still carries potential to disrupt the functioning of the EU. EUR-USD has support at 1.1626-30.

    [USD, JPY]
    USD-JPY found its feet after stocks rebounded in China and Asia, which was seen after the Yuan lifted from lows amid reported purchases by major state banks, apparently in a Beijing-directed move to smooth USD-CNY's assent after the PBoC set a higher reference rate for a seventh consecutive day. The Yen had been firming after the Yuan hit one-year lows, which had rattled stock markets in Asia. The sharp drop in global equity markets seen after China's sudden 2% devaluation of the Yuan in August 2015 has been at the forefront of investors minds lately, so the apparent intervention to cap Yuan losses mollified, at least up to a point, prevailing concerns about competitive devaluation and ratcheting-up trade tensions with the U.S. (and risks for capital outflows from China). This fuelled a rebound in the MSCI Asia-Pacific equity index (ex-Japan) to a net gain of 0.55% from a 0.4% loss at the intraday lows. USD-JPY concomitantly recouped to the mid 112.0s after printing a low of 112.21 while AUD-JPY, a relatively high-beta cross which is sensitive to China sentiment, has lifted by nearly 1% from its lows.

    [GBP, USD]
    Sterling has underperformed this week, showing an average 1.7% decline on the week-on-week comparison versus the G3 currencies. Wednesday's unexpected dip in core UK CPI (to 1.9% y/y from 2.1% y/y) along with yesterday's unexpected contraction in June retail sales (of 0.5% m/m) have been ostensibly blamed for dimming BoE tightening expectations, though there are arguments that hawks at the MPC could use to downplay both -- summer discounting being behind an aberrative ebb in inflation, and, in the case of retail sales, hot weather and the national fixation on the World Cup being behind one-off declines in footfall on the high street and online activity. A more pressing concern is the sharpening Brexit negotiation process, as time starts to run out. An EU source cited by Bloomberg yesterday said that the UK government's policy document, which lays out what it wants from a new relationship with the EU, is unclear. EU ministers are meeting in Brussels today to formally review the UK government's proposals. The European Commission said yesterday that "everyone must now step up plans for all scenarios" ahead of March 29th next year, especially in the event of a no-deal exit. We continue to see directional risks to Cable as being greater to the downside than to the upside. Cable has resistance at 1.3042-45.

    [USD, CHF]
    EUR-CHF has settled back in the mid 1.1600s, down from the eight-week high seen earlier in the week 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 settled higher, around 1.3250. Fed chair Powell's upbeat view of the U.S. economy, along with recent hefty declines in oil prices, formed a cocktail of bullish narratives for USD-CAD this week. We retain a bullish view of the pairing, looking for a revisit of the June highs at 1.3384-87. Support comes in at 1.3146-68. The Canadian calendar picks up today with the release of retail sales and CPI data. We expect retail sales to snap back by 1.0% in May after the 1.2% loss in April that was blamed on poor weather during the month (ice storm!). We anticipated CPI to slip 0.1% in June (m/m, nsa) after the surprisingly slim 0.1% gain in May, as falling gasoline prices impact in June. The annual growth rate is seen at 2.2% (y/y, nsa), matching the 2.2% y/y clip in May. The three core CPI measures are expected to maintain 1.9% annual rate of expansion in June.

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