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By XE Market Analysis June 14, 2018 6:42 am
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    XE Market Analysis: North America - Jun 14, 2018

    The dollar has traded mostly lower, more than correcting gains seen in the wake of the Fed's rate hike and hawkish-tilting guidance yesterday. EUR-USD logged a high of 1.1827 after extending a recovery from yesterday's 1.1725 low that was seen in the immediate wake of the Fed's announcement. Market participants are anticipating the ECB to announce an end of QE policy later, though the euro's upside ambition was stymied by a fresh sell-off in Italian bonds. An Italian minister said that the government will be asking parliament not to ratify the EU trade deal with Canada (CETA), re-catalysing investor concerns about the possible threat to the EU's integrity the new populist government in Italy poses. USD-JPY ground lower, below 110.00, with the Fed's rate hike pushing global stocks turn lower and richening the yen's safe haven premium. Sterling posted about a 30 pip rally against both the dollar and euro following above-forecast retail sales data, tracking UK yields higher. Cable logged a post-data peak at 1.3447, which is the loftiest level seen in a week, before settling lower. AUD-USD, and more especially AUD-JPY, took a bath after a disappointing Australian employment report. AUD-USD printed a two-week low at 0.7529.

    [EUR, USD]
    EUR-USD encountered some headwinds after rallying back above 1.1800 from yesterday's 1.1725 low that was seen in the immediate wake of the Fed's rate hike and hawkish-tilting guidance. The pair logged a high at 1.1827 as market participants anticipated the ECB to announce an end of QE policy later, before the euro's upside ambition was stymied by a fresh sell-off in Italian bonds, which was seen after an Italian minister said that the government will be asking parliament not to ratify the EU trade deal with Canada (CETA), re-catalysing investor concerns about the possible threat to the EU's integrity the new populist government in Italy poses. Final May inflation data out of Germany and France, meanwhile, confirmed that HICP is pushing the upper limit of what the ECB considers is price stability. We think there is a risk that EUR-USD will tip lower following the ECB's announcement, where we expect the central bank to wrap its end-of-QE signal in a cloak of dovish guidance (a so-called "dovish tightening" signal). The Fed's bullish assessment of the economy still as some resonance, too, even though Chairman Powell noted that the central bank's models aren't showing a spike in inflationary pressures. EUR-USD has resistance at 1.1831-32.

    [USD, JPY]
    USD-JPY has ground lower in the wake of the Fed's rate hike, which saw Wall Street close lower and led to a bearish session across Asian and European bourses, although stock market declines haven't been too substantial for the most part as investors digest the hawkish tone of the Fed on the hand and its plainly bullish assessment of the U.S. economy on the other. In firming today, the yen has followed its oft-seen inverse correlation with global equity market direction. The biggest movement out of the main currencies has been AUD-JPY, a cross which trades like a high beta asset, and declined by over 0.3%. The Aussie dollar has also been under pressure following a sub-forecast Australian employment report. USD-JPY printed a low at 109.91 during the London AM session. Ahead today, the ECB is expect to announce the end of QE, while U.S. President Trump will reportedly decide whether to proceed with tariffs on Chinese goods later on Thursday (his unabashed form this week suggests he won't hold back). Fundamentals are bullish for USD-JPY, but the risk for a sustained bout of equity market would be bearish for the pairing.

    [GBP, USD]
    Sterling posted about a 30 pip rally against both the dollar and euro following above-forecast retail sales data, tracking UK yields higher. Cable logged a post-data peak at 1.3447, which is the loftiest level seen in a week, before settling lower. UK May retail sales beat forecasts, rising 1.3% m/m after upwardly revised 1.8% m/m growth in the previous month. The median forecast had been for a more moderate 0.5% m/m expansion. A sustained spell of sunny weather along with celebrations surrounding the royal wedding, which boosted spending in food and household goods stores, drove the upside surprise. The one-off nature of the outsized growth in retails suggest some caution is warranted in interpreting the data, especially after April data earlier in the week showing, 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. We advise fading gains in Cable. Resistance is at 1.3447-50 and 1.3472-75, which encompasses the three-week range high.

    [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 settled back under 1.3000 after retreating from yesterday's five-session peak at 1.3051. A lift in oil prices over the last day, following EIA data showing a drop in U.S. crude inventories, gave the Canadian dollar a lift, along with progressing NAFTA negotiations, despite the public falling-out between President Trump and Canada's Trudeau last weekend. We still retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and partly on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.2950-50, which encompasses both a three-week trendline and the current situation of the 20-day moving average. Resistance is at 1.2998-1.3000.

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