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By XE Market Analysis June 7, 2018 7:05 am
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    XE Market Analysis: North America - Jun 07, 2018

    The has dollar lost more ground to most currencies, though continued to hold steady against the yen while gaining a little ground on the Australian and Canadian dollars. EUR-USD has extended to a new three-week high of 1.1838, while EUR-JPY has forayed further into two-week terrain. The common currency is registering as the strongest currency on the day so far out of the main units, showing a 0.5% advance against the weakest, which is the Canadian dollar. Yesterday's batch of ECB-speak has signalled an end-of-QE announcement is in the works and markets have been adjusting accordingly. USD-JPY has settled to a narrow orbit of 110.0 after pegging a fresh two-week high at 110.26 after the London close yesterday. The pairing is near the midway point of the range that's been posted over the last month. AUD-JPY has been a relatively big mover for a second day, this time reversing some of the outsized gains the cross saw yesterday. Cable has remained underpinned, printing a 16-day high of 1.3472 today. News that the government will publish a backstop plan for the Irish border (which is seen as crucial in the Brexit process) gave the pound a lift. The collective gaze of market participants is now falling on the G7 meeting in Canada, which starts tomorrow, and which seems to be mostly seen as a risk event give the escalating hostility over trade.

    [EUR, USD]
    EUR-USD extended to a new three-week high of 1.1838, while EUR-JPY has forayed further into two-week terrain. The common currency is registering as the strongest currency on the day so far out of the main units, showing a 0.5% advance against the weakest, which is the Canadian dollar. The rise in the euro over the last day has been concomitant with a rise in Bund yields an associated firming-up in expectations for the ECB to start cranking down on the monetary stimulus spigot. EUR-USD is amid a nascent recovery from the 11-month low at 1.1510 that was seen on May 29, breaking what had been a run of six consecutive down weeks. We expect further euro gains, but advise caution with the euro worry list including concerns about how viable a government Italy's populist Five Star and League will prove to be, and whether their anti-establishment, Eurosceptic colours will start to show through in policy.

    [USD, JPY]
    USD-JPY lifted to a fresh two-week high above 110.00, bringing the four-month high at 111.39 (seen May 21) back into scope. EUR-JPY and other yen crosses are also up, the biggest mover of which has been AUD-JPY (which benefitted from forecast-beating GDP data out of Australia). A backdrop of mostly higher stock markets in Asia and Europe has seen the yen underperform as safe haven premiums further unwind. Strength in tech stocks helped lift stock markets, while Beijing said that it would buy $70 worth of U.S. goods if the Trump administration lifts steel and aluminium tariffs. Fundamentals -- specifically the divergent policy paths of the U.S. and BoJ -- remain bullish, though given the large number of potential geopolitical flash points, and the risk that the U.S.-led trade war will worsen before improving, we think there remains a chance that further risk-off bouts will underpin the yen and weigh on USD-JPY. Close attention to unfolding developments is warranted. USD-JPY's 109.84-95 zone, which encompasses both of 20- and 100-day moving averages, marks support.

    [GBP, USD]
    Cable has remained underpinned, printing a 16-day high of 1.3472 today. The pound has also been buoyant against the yen while trading more mixed against other currencies -- losing ground to the outperforming euro, for instance. This is the second consecutive week of gains for Cable, breaking a run of six consecutive down weeks, similar to EUR-USD. UK data this week, highlighted by the May PMI surveys, have showed a weakening in the pace of economic expansion but also maintained expectations for the BoE to tighten monetary policy (gradually) on signs that pay growth is picking up amid a tightening labour market. May inflation data, next Wednesday, will be the next top-tier data release out of the UK. Cable has support at 1.3384-90, which encompasses the 20-day moving average.

    [USD, CHF]
    EUR-CHF lifted to a two-week high of 1.1640 amid a broader lift in the euro following hawkish ECB speak on Wednesday, which has prepped markets for a reversing out of QE policy. The gains in EUR-CHF further extends the rebound from the nine-month low that was seen last week at 1.1368. The move has been concomitant with the steadying in Italian markets as the main populist parties managed to forge a new government, and avoid the need for a new general election. The recent phase of euro weakness saw EUR-CHF lose over 4% from the 41-month that was printed a month ago at 1.2005, which was the summit of an 11-month rally phase, and which in turn was a reflection of what had been -- before recently -- a sense of abating existential risks that the Eurozone was facing. The jury will remain out about how market friendly Italy's new government turns out to be.

    [USD, CAD]
    USD-CAD has seen whippy price action lately, impacted by mixed NAFTA-related headlines and volatility in oil prices, which often have some bearing on the Canadian dollar. The range over the last week has been 1.2818 to 1.3067. Overall, we retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving, though this is a tentative view. Some political pundits having been thinking that there is a chance that President Trump will throw a bone to some of the vociferous pro-trade Republican party members by making Canada exempt from tariffs. USD-CAD has support is at 1.2860. The Canadian calendar brings the publication of the latest BoC Stability Review today, and tomorrow the release of the May employment report. Canada will also be hosting the G7 meeting, which starts tomorrow and extents into the weekend.

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