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By XE Market Analysis June 12, 2018 7:10 am
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    XE Market Analysis: North America - Jun 12, 2018

    The dollar has traded mixed and in relatively narrow ranges. USD-JPY managed to post a three-week high at 110.49 during the Tokyo session amid a then-buoyant mood in Asian markets amid the fanfare and bonhomie of the Trump-Kim summit, but subsequently ebbed back toward the 110.00 level as a more circumspect mood prevailed after the two leaders issued a statement that while touting it as an "epochal event" and pledging denuclearization, lacked concrete steps, aside from pledging follow-on meetings "at the earliest possible date." EUR-USD recovered the 1.1800 handle after dipping to two-session low of 1.1742 in the wake of the Tokyo fix, though a sub-forecast German ZEW investor sentiment gauge capped gains. The pair had yesterday lifted to a high of 1.1820, leaving last week's three-week peak at 1.1839 untroubled and maintaining 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.

    [EUR, USD]
    EUR-USD recovered the 1.1800 handle after dipping to two-session low of 1.1742 in the wake of the Tokyo fix. The pair had yesterday lifted to a high of 1.1820 before stalling and slipping back under 1.1800, which 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 new Italian finance minister yesterday mollified markets by pledging commitment to the euro, though the political situation in Italy still requires circumspection with regard to how viable a government the coalition of the Five Star and League populist parties 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 ebbed back towards 110.00 after printing a three-week high of 110.49 during the Tokyo session amid a caution sense of optimism about the Trump-Kim summit. The summit finished with both leaders signing a statement promising denuclearization and laden with rosy talk of an "epochal event" and of the start of new relations and of peace and prosperity. While concrete steps were conspicuous in their absent, the statement stipulated that there will be follow-on meetings between the U.S. Secretary of State Pompeo and "a relevant high-level DPRK official," to be held at the "earliest possible date" to implement the outcomes of the summit. After this, markets become a little more circumspect and the bullish tone of the Asian equity market session gave way to a more indifferent tone during the AM session on European equity bourses. This in turn promoted USD-JPY to nudge lower. In purely fundamental terms, the outlook for USD-JPY looks a bullish one, with the Fed set for more tightening and the BoJ remaining committed to monetary stimulus, including the pegging of the 10-year JGB near 0%. USD-JPY has support at 109.87-90

    [GBP, USD]
    Cable recovered to levels around the 1.3400 mark while trading without net direction against the euro and yen, although seeing some choppy price action. UK labour data revealed a softening in wage growth, which dipped to 2.5% y/y growth in the three months to April, down from 2.6% y/y in the month prior and below the median forecast for an unchanged 2.6% y/y outcome. The unemployment rate remained unchanged, at 4.2%, which is a multi-decade low, in March, which met the median forecast. The weaker income figure will trim the probability for the BoE to hike rates as soon as August, as this has been a key metric for policymakers (given their concerns about diminishing spare capacity in the context of low productivity growth). The data today follows a big miss in UK April production and trade data yesterday. Sterling markets will now be focusing on a significant Brexit event today, being the so-called "Super Tuesday", which will be a 12-hour marathon session in the House of Commons to debate and 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 see directional risks for Cable as being greater to the downside than to the upside, seeing scope for revisit of the May low at 1.3204.

    [USD, CHF]
    EUR-CHF has softened back some after printing a three-week high at 1.1657 on Monday. The gains 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 has settled around the 1.3000 mark after initially spiking sharply higher in early-week trading following by the public falling-out between President Trump and Canada's Trudeau. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. Support comes in at 1.2923-25.

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