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By XE Market Analysis July 25, 2018 7:30 am
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    XE Market Analysis: North America - Jul 25, 2018

    The Dollar has traded mixed so far today. EUR-USD tracked moderately higher, recovering above 1.1700 but remaining shy of yesterday's peak at 1.1716. A better than forecast German Ifo survey aided the Euro higher, along with an attempt by Italy's President to calm concerns about the more strident Eurosceptic voices in the populist government. USD-JPY remained settled in the lower 111.0s, above the two-week low that was printed on Monday at 110.75. AUD-USD lost nearly 0.5% at its 0.7392 low, which was seen after Australian CPI data came in at 0.4% q/q in Q2, below the median forecast for 0.5%. Cable has edged out a one-week high of 1.3174, extending the rebound from the 10-month low that was seen last Thursday at 1.2957. Commitment in markets has been limited overall, with strong corporate earnings and China's course for fiscal stimulus presently offsetting concerns about long-term trade protectionism. Focus today will fall on the meeting between the President Trump and European Commission President Juncker, though few are holding out for any breakthrough on their differences on trade. In Japan, markets continue to digest the recent Reuters report that the BoJ is thinking of tweaking its stimulus program to make it more sustainable, which has seen Japanese yields rise and the yield curve steepen sharply, though yields dipped back some today amid market narratives expressing doubt that the BoJ will do anything at its policy meeting next week other than confirm it is reviewing its stimulus program.

    [EUR, USD]
    EUR-USD tracked moderately higher, recovering above 1.1700 but remained shy of yesterday's peak at 1.1716. A better than forecast German Ifo survey aided the Euro higher, along with an attempt by Italy's President to calm concerns about the more strident Eurosceptic voices in the populist government. EUR-USD is near to the midway mark of the broadly sideways range that's been seen since late May. The relative strength of the U.S. economy and the Fed's tightening course tips the balance of directional risk toward the downside -- there is speculation that Friday's advance U.S. Q2 GDP report will top the median forecast for 4.1% y/y growth -- though President Trump's verbal interventions in Fed policy and forex rates has made it tactically more challenging for Dollar bulls. Across the pond there are other wildcards; one stemming from the still-evolving populist political landscape in Italy, and another being the prevailing sense of risk for there being a no-deal Brexit scenario, with both carrying potential to disrupt the EU applecart. EUR-USD has support at 1.1633-35, and resistance at 1.1716-18. Focus today will fall on the meeting between the President Trump and European Commission President Juncker, though few are holding out for any breakthrough on their differences on trade.

    [USD, JPY]
    USD-JPY has remained settled in the lower 111.0s, above the two-week low that was printed on Monday at 110.75. Commitment in markets has been limited, with strong corporate earnings and China's course for fiscal stimulus offset by concerns about long-term trade protectionism. Focus today will fall on the meeting between the President Trump and European Commission President Juncker, where few are holding out for any breakthrough on their differences on trade. In Japan, markets continue to digest the recent Reuters report that, according to sources, the BoJ is in "preliminary" discussions to tweak its stimulus program to make it more sustainable, which has seen Japanese yields rise and the yield curve steepen sharply, although yields dipped back some today with markets taking reassurance after the central bank conducted regular purchases of government debt in the expected amount. This helped the hard-hit long-dated JGBs, driving the 10-year JGB down by 1.5 bp and the 20-year JGB yield by 3.5 bp after spiking over 10 bp over the previous two days. The BoJ meets on policy next Monday and Tuesday. Market narratives are expressing doubt that the BoJ will do anything other than confirm it is starting to look at making stimulus sustainable. Markets are also anticipating the central bank to trim inflation forecasts. We anticipate a broadly sideways trend in USD-JPY. Support comes in at 110.75-80 and 110.60-63, levels which encompass daily lows and the prevailing situation of the 50-day moving average.

    [GBP, USD]
    Cable has edged out a one-week high of 1.3174, extending the rebound from the 10-month low that was seen last Thursday at 1.2957. The overall trend still remains bearish, which has been the case since late April, with the weekly chart showing a run of lower weekly lows and lower weekly highs. Technical analysts will be looking for a weekly close below 1.3135-40 for fresh affirmation of this trend. There has been a dearth of both market-impact UK data (yesterday's July CBI industrial trends survey revealed total orders to have fallen less than had been expected) and significant Brexit-related developments. The UK data calendar is quiet for the rest of the week, leaving the spotlight on the Brexit negotiation. The BoE MPC August meeting is looming, with the announcement up Thursday next week. Sterling markets are discounting an 88% probability for a 25 bp hike in the repo rate (according to Bloomberg), which has long been our view, though such as move would likely be couched in cautious policy guidance given the sharpening risk of Brexit-related uncertainty affecting consumer and business spending plans.

    [USD, CHF]
    EUR-CHF has been descended to around the 1.600 level after posting a two-month high last week at 1.1714. This has returned the to midway levels of a sideways range that's been evolving since late May, which is a similar pattern that EUR-USD has been seeing. The risk posed by Italy's Eurosceptic populist government to upset the EU applecart, along with risk of deepening trade protectionism, suggests the directional bias will remain skewed to the downside. Support is at 1.1535.

    [USD, CAD]
    USD-CAD has recouped to the upper 1.31s, up from the 1.3114 low posted in the wake of last Friday's above-forecast CPI and retail sales data out of Canada. Expectations for a 4%-plus U.S. Q2 GDP reading on Friday has been buoying the U.S. Dollar, and we expect this to remain the case for now. USD-CAD has support at 1.3127-30.

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