Home > XE Currency Blog > XE Market Analysis: North America - Jun 10, 2019

AD

XE Currency Blog

Topics6376 Posts6421
By XE Market Analysis June 10, 2019 6:57 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4368
    XE Market Analysis: North America - Jun 10, 2019

    The Dollar took a rotation higher concomitantly with a 4bp-plus spike in the 10-year T-note yield following news that the U.S. and Mexico have reached a deal on migration, which allayed investor concerns on trade. The narrow trade-weighted USD index rallied by nearly 0.5% from Friday's 12-week low in making a high earlier at 97.91. EUR-USD concurrently receded to the lower 1.1300s after peaking at 1.1347 on Friday. USD-JPY printed a 10-day peak at 108.71, aided by a concurrent theme of modest yen underperformance amid a backdrop of rallying stock markets in Asia. Cable losses were exacerbated by much weaker than expected April trade and monthly GDP data out of the UK. Cable's printed a low at 1.2683, extending from pre-data levels at 1.2718-20, taking out Friday's nadir on route. The pound concurrently hit a new five-month low against the Euro, making this the sixth consecutive week the UK currency has breached its prior-week low versus the common currency. Elsewhere, the Canadian Dollar managed to hold its own against the U.S. buck, with the improvement in U.S.-Mexican relations boding well for the yet to be ratified North American trade agreement. U.S. inflation figures this week are the biggest market moving risk this week, along with retail sales at the end of the week. We estimate Wednesday's release of CPI to come in with a 0.1% May gain in the headline reading with a 0.2% increase in core prices, following respective April readings of 0.3% and 0.1%. As-expected gains would result in a headline y/y gain of 1.9%, down from 2.0% in April.

    [EUR, USD]
    EUR-USD has settled to a narrow orbit around 1.1300 after reversing gains seen in the wake of Friday's weaker than anticipated U.S. May jobs report, which exacerbated fears that slowing in manufacturing and capex on trade uncertainties are spilling over to the broad economy and labor market. News that the U.S. and Mexico have reached a deal on migration has allayed investor concerns on trade, igniting a 4bp-plus spike in the 10-year U.S. T-note yield, which in turn has generated a rotation higher in the U.S. currency. The dynamic comes after EUR-USD posted a 1.5% rise on the week, which is the biggest weekly advance since August last year. The pair now looks set for a phase with little net directional change. U.S. inflation figures this week are the biggest market moving risk this week, along with retail sales at the end of the week. We estimate Wednesday's release of CPI to come in with a 0.1% May gain in the headline reading with a 0.2% increase in core prices, following respective April readings of 0.3% and 0.1%. As-expected gains would result in a headline y/y gain of 1.9%, down from 2.0% in April. EUR-USD has support at 1.1276-78, and resistance at 1.1347-50.

    [USD, JPY]
    USD-JPY has printed a 10-day peak at 108.71, underpinned predominantly by a rallying Dollar as markets digested the breakthrough in U.S.-Mexico relations and concurrent theme of modest Yen underperformance amid a backdrop of rallying stock markets in Asia. USD-JPY has now breached above its prior-week peak for only the second time out of the last seven weeks. We expect the pair to continue to hold a better footing for now, especially with the planned meeting between U.S. Treasury Secretary Mnuchin and his Chinese counterpart at the G20 later in the month serving to arrest what had started seem an irrevocable downward spiral in relations between Washington and Beijing. USD-JPY has support 108.32-35, and resistance at 108.91-94.

    [GBP, USD]
    Sterling has taken a turn lower in the wake of much weaker than expected April trade and monthly GDP data out of the UK. Cable's low so far is 1.2683, having dropped from pre-data levels at 1.2718-20, with the move taking out Friday's nadir. The pound concurrently hit a new five-month low against the euro, making this the sixth consecutive week the UK currency has breached its prior-week low versus the common currency. April GDP contracted 0.4% m/m, the biggest monthly decline since March 2016, while April manufacturing fell by a 3.9% m/m rate -- the biggest contraction since June 2002. The data build an increasing sense of gloom about an economy being afflicted by prolonged political and associated Brexit uncertainty, coupled with a slowing economies in continental Europe. The pound looks like it will remain firmly on the out-of-favour list of overlay and reserve managers, especially with arch Brexiteer Boris Johnson favourite to become the new prime minister. "BoJo" is running his campaign on a hard, no-deal-if-necessary Brexit, which would see the UK adopt less favourable WTO trading terms after exiting the EU.

    [USD, CHF]
    EUR-CHF extended to a 10-day high at 1.1210 during pre-Europe trading in Asia, reflective of unwinding in safe-haven positioning amid U.S.-Mexico development and the recent burgeoning in central bank easing expectations. The gain put some further space in from the 23-month low that was printed at 1.1119 earlier in the week. The SNB's Alternate Governing Board Member Moser said recently that in his view "if we had higher interest rates then we would have a stronger exchange rate", which something the central bank is ever eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said that the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase.

    [USD, CAD]
    The Canadian Dollar has managed to more than hold its own against an otherwise outperforming U.S. currency, benefitting from the 2% rise in oil prices over the last week, and with the improvement in U.S.-Mexican relations boding well for the yet to be ratified North American trade agreement. USD-CAD, after diving quite sharply on Friday to an 11-week low at 1.3262 in what was the biggest weekly drop since February 22 and the biggest weekly drop since the last week of December, extended farther south today, posting a three-month low at 1.3243. Sub-forecast U.S. jobs data juxtaposed to sub-forecast Canadian jobs data was bearish catalyst on Friday. We expect follow-through selling of USD-CAD in the days ahead. The pair has resistance at 1.3303-05.

    Paste link in email or IM