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By XE Market Analysis June 11, 2018 7:39 am
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    XE Market Analysis: North America - Jun 11, 2018

    The dollar has traded mixed, and currencies were more generally settled after an initial jolt in early Asia-Pacific trading after the weekend dramatics of President Trump's refusing to sign off on the G7 communique. The biggest mover in early trade was a sharp dip in the Canadian dollar. A cautious calm subsequently prevailed, with stock markets lifting out of lows and the yen unwinding some of its safe haven premium. USD-JPY rebounded to a two-session high of 110.07 after an early-session wobble left a loft at 109.32. EUR-USD lifted to a high of 1.1820 before stalling and slipping back under 1.1800. This left last week's three-week peak at 1.1839 untroubled, and maintained a feeling that the euro's rebound has lost puff, even amid expectations for the ECB to announce an end to QE policy at its meeting on Thursday. USD-CAD spiked to a high of 1.3003 in early trading, and subsequently remained underpinned. Sterling took a five following the release of UK April production and trade data, which missed expectations bigly. Cable dove from levels around 1.3420 to a low of 1.3342 before finding a toehold. Major events now loom: Trump's meeting with North Korea's Kim, tomorrow; the Fed's FOMC announcement on Wednesday; the ECB's meeting on Thursday, where we expect an end to QE to be announced; the sharp deterioration in trade relations (which presently look more likely to worsen than to improve); and Brexit "Super Tuesday," with the UK's parliament will tomorrow debate and vote on a string of Brexit Bill amendments.

    [EUR, USD]
    EUR-USD lifted to a high of 1.1820 before stalling and slipping back under 1.1800. This left last week's three-week peak at 1.1839 untroubled, and maintained a feeling that the euro's rebound has lost puff, even amid expectations for the ECB to announce an end to QE policy at its meeting on Thursday. The political situation in Italy still requires circumspection with regard to 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. EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY rebounded to a two-session high of 110.07 after an early-session wobble left a loft at 109.32. The low was seen as markets initially reacted in a panicky manner following the weekend dramatics of President Trump's refusal to sign off on the G7 communique. A cautious calm subsequently prevailed, with stock markets lifting out of lows and the yen unwinding some of its safe haven premium. Major events now loom: Trump's meeting with North Korea's Kim Jong Un, tomorrow, which looks set to be a superficial success (superficial in the sense that Kim won't be making any concrete agreement to denuclearization); the Fed's FOMC, which starts tomorrow and announces on Wednesday, where a 25 bp rate hike is a near fait accompli and where focus will be on the central bank's guidance; the ECB's meeting on Thursday, where we expect an end to QE to be announced; and, last but not least, the sharp deterioration trade relations (which look more likely to worsen than to improve). Because of these risk factors, we recommend fading USD-JPY gains. Resistance is at 110.09-10, and 110.25-26.

    [GBP, USD]
    Sterling took a five following the release of UK April production and trade data, which missed expectations bigly. Cable dove from levels around 1.3420 to a low of 1.3342 before finding a toehold. The pound also fell against the euro and most other currencies. Industrial production unexpectedly contracted by 0.8% m/m after rising by a fractional 0.1% in the previous month. The median forecast had been for a 0.0% m/m outcome. Manufacturing output thwarted the median forecast for a 0.3% m/m rise by contracting by 1.4% m/m, which is the largest m/m fall since October 2012. The underlying three-month on three-month figure to April in manufacturing output was -0.5%, which is the largest fall since May 2017. The fall in manufacturing, which while a narrower gauge than industrial production is generally seen as a better bellwether of cyclical trends, was driven by widespread weakness throughout the sector due to a reduction in the growth rate of both export and domestic demand, according to the ONS stats office. As for trade data, the total deficit widened GBP 1.9 bln to GBP9.7 bln in the three months to April, driven by declines in exports of both goods and services. A significant Brexit event looms, being the so-called "Super Tuesday", which will be a 12-hour marathon session in the House of Commons to vote on proposed amendments to the Brexit Bill. Most likely, although not entirely certain, the government's position for a "hard" Brexit -- to withdrawal from the EU's single market and customs union -- will prevail. We expect further downside in Cable, seeing scope for revisit of the May low at 1.3404.

    [USD, CHF]
    EUR-CHF lifted above 1.1600, printing a near-three-week high at 1.1657. The gains have tagged EUR-USD gains as markets discount the ECB announcing the end of QE at its policy meeting this Thursday. The recent phase of euro weakness saw the cross 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 spiked sharply to a 1.3003 high at the open of trading today, prompted by the public falling-out between President Trump and Canada's Trudeau, though the pair subsequently retreated to narrow range-trading around the 1.2970 mark. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. USD-CAD has support is at 1.2923-25.

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