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By XE Market Analysis June 13, 2018 7:11 am
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    XE Market Analysis: North America - Jun 13, 2018

    The dollar has been trading mixed so far today as markets anticipate the Fed policy announcement. The euro has posted moderate across-the-board gains, with EUR-USD vaulting back above 1.1760, over 30 pips up on the intraday low, and EUR-JPY pushing back above 130.00, EUR-GBP above 0.8810 and EUR-CHF above 1.1615. A successful Italian auction of 30-year bonds, which appetite for long-dated debt seen as a litmus test of investor sentiment, was taken as a euro buying cue, coming with participants expecting the ECB to announce an end of QE policy tomorrow. USD-JPY clawed out a fresh three-week high at 110.71. Yen crosses also remained underpinned, though EUR-JPY and AUD-JPY, for instance, remained below recent highs. Global stock markets have lost upside traction, with risk appetite turning somewhat neutral. Cable has clocked an eight-day low at 1.3310, while EUR-GBP has pushed back toward recent range highs. The sterling tracked UK yields lower following CPI data, which while remaining unchanged at 2.4% y/y, matching the economist median view, some market participants had been hedging on a rise to 2.5% y/y due to the perceived impact of recent oil price gains. The Fed announcement now looms, where a 25 bp rate hike is widely expected and where the focus will be on the guidance, which will be formed by the statement, the dot plot and revised economic forecasts.

    [EUR, USD]
    The euro showing across-the-board gains presently, with EUR-USD vaulting back above 1.1760, over 30 pips up on the intraday low, and EUR-JPY pushing back above 130.00, EUR-GBP above 0.8810 and EUR-CHF above 1.1615. Market narratives appear to be focused on the successful Italian auction of 30-year bonds, which appetite for long-dated debt seen as a litmus test of investor sentiment. This follows remarks from new Italian finance minister earlier in the week, which mollified investors by pledging that the new government is committed to the euro. Market participants are also anticipating the ECB to announce an end of QE policy tomorrow. Taking a step back, and even accounting for the present phase of buying, the euro looks to have lost upside traction following the ascent posted during the first week of the month. EUR-USD failed to sustain multiple forays above 1.1800 in recent sessions, leaving last week's three-week peak at 1.1839 untroubled. The Fed announcement now looms, where a 25 bp rate hike is widely expected and where the focus will be on the guidance, which will be formed by the statement, the dot plot and revised economic forecasts. EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY clawed out a fresh three-week high at 110.71. Yen crosses also remained underpinned, though EUR-JPY and AUD-JPY, for instance, remained below recent highs. Global stock markets have lost upside traction, with risk appetite turning somewhat neutral as market participants anticipate "live" Fed and ECB meetings this week, with the former set, later today, to hike the Fed funds rate by 25 bp and the latter to announce, tomorrow, an end of QE. The Japanese currency underperforming as it loses some of its safe haven premium following all the bonhomie, feel good glow of the Trump-Kim summit. Assuming sentiment remains generally upbeat, and global stock market direction remains tilted upwards, the yen would likely remain on a softening path, and USD-JPY on a firming path. The pair has support at 110.10-13.

    [GBP, USD]
    Sterling has ebbed in the wake of UK inflation data, extending declines that were being seen before the data release. The impact on UK yields has been more clear cut, with the 2-year yield dropping over 2 bp to a 0.706% low. While our survey median was for headline CPI to remain unchanged at 2.4% y/y, as proved to be the case, some market participants had been hedging on a rise to 2.5% y/y due to the perceived impact of recent oil price gains. This impact was evident in the report, but was offset by declines in some price categories not directly related to crude prices. UK markets are also continuing to positionally adjust to a run of sub-forecast data this week, most notably an unexpected deceleration in wage growth, a metric being closely monitored by the BoE, and sharply weaker-than-expected production and trade data. The net impact is a reduction in odds for BoE tightening. Cable has clocked an eight-day low at 1.3310, while EUR-GBP has pushed back toward recent range highs. 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, though this dynamic has come to pass. In the bigger view, the phase of euro weakness that was seen in May 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 lifted to a three-day high of 1.3033. The backdrop of ongoing simmering tensions following the public falling-out between President Trump and Canada's Trudeau has continued to cast a negative impact on the Canadian dollar. We retain a bullish view of USD-CAD on the view that trade tensions are likely to worsen before improving. Support comes in at 1.2998-1.3000.

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