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By XE Market Analysis June 15, 2018 7:14 am
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    XE Market Analysis: North America - Jun 15, 2018

    The dollar has corrected some of the gains seen yesterday and through today, led by a rebound in EUR-USD and a decline-from-highs in USD-PY, with the former repairing to around 1.1600 from a 16-day low posted earlier at 1.1543 and the latter retreating back under 110.50, leaving a three-week high at 110.90. The narrow trade-weighted USD index (DXY) more than gave up intraday gains after earlier printing a seven-month peak at 95.13. The dollar also retreated a little after gaining on the dollar bloc currencies, and other currencies, and pulling back after posting new highs for the year against a slew of emerging market currencies. Market participants are now focusing on upcoming U.S. data releases, which today are highlighted by industrial production, consumer sentiment and the latest NY State index, which we expect will be collectively bullish for the dollar. Concerns remain on the trade front, with a CNBC report suggesting that U.S. President Trump will later announce tariffs on $50 bln worth of Chinese imports, which would mark another ratchet up in trade warring. The Washington Post has cited European officials (unnamed) speculating that the reason for the "manufactured rage," as the editorial puts it, in Trump's and his aide Navarro's attack on the Canadian Prime Minister Trudeau last weekend was what poker players call a "tell," a sign that the Trump administration is set on mounting an all-out assault on global trade organisations, and an eventual exit of the U.S. form the WTO.

    [EUR, USD]
    EUR-USD recovered to the 1.1600 during the London AM session after extending to a fresh 16-day low of 1.1555 in Asia trading. The ECB's dovish-tilting guidance yesterday served to emphasize the Fed's relatively hawkish stance, sending the euro spinning, especially against the dollar. EUR-USD was perhaps ripe for a rebound, having been trading above 1.1820 ahead of the ECB's announcement yesterday, with the magnitude of consequent losses the sharpest over a day since October 26th-27th of last year. After a two-week hiatus, the price action reaffirmed a bear trend that's been in evolution since mid April. Resistance comes in at 1.1669-70. We would look for a weekly close today below the previous lowest weekly close at 1.1659 to affirm the bear trend credentials.

    [USD, JPY]
    USD-JPY corrected under 110.50 after lifting to a 24-day high of 110.90 in the wake of the BoJ lowering its inflation projection following a widely-anticipated decision to leave monetary policy settings unchanged at its meeting today. The new inflation forecast underlines the chronic undershooting of the inflation target and points to ongoing ultra-accommodative policy --- which includes pegging the 10-year JGB yield at near 0% -- for the foreseeable, certainly through to 2019. Given the contrast to the Fed's policy path, this reinforces the bullish fundamental underpinning of USD-JPY, although any bouts of sharp risk-off sentiment in global markets would remain a downside risk (and, regarding this, we should watch the reaction in markets from President Trump's expected escalation of trade tariffs). Support comes in at 110.39-40, while the May 21 high at 111.39 provides an upside target.

    [GBP, USD]
    Cable has rebounded toward 1.3300 after posting a near-four-week low at 1.3211. The pair has been tracking EUR-USD direction closely in recent sessions. As for UK fundamentals, strength in the May retail sales report, released yesterday, can be downplayed as having been caused by one-off factors (think good weather and royal wedding, along with a flattering base effect in the y/y comparison), while, before this, there has been a run of sub-forecast UK releases. April data earlier in the week showed an unexpected deceleration in wage growth -- a metric being closely monitored by the BoE -- and sharply weaker-than-expected production and trade data. May PMI surveys, released earlier in the month, also highlighted weakness in forward-looking indicators, such as new business growth. We are looking for Cable to revisit the late May seven-month low at 1.3204. Resistance is at 1.3297-98.

    [USD, CHF]
    EUR-CHF dropped to a 10-day low of 1.1525 following the ECB's dovish guidance, down from levels above 1.1600. This returns the cross to about midway levels of the range that's been seen over the last three weeks. The ECB's policy stance should ensure that the SNB remains resolutely committed to its ultra-accommodative monetary policy setting in an attempt to ward off, or at least limit, franc gains against the euro.

    [USD, CAD]
    USD-CAD smashed through late May highs on route to posting a one-year high at 1.3147. The unexpectedly hawkish Fed guidance this week has given the pair an underpinning, adding to concerns about trade tensions between the U.S. and Canada. We 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 1.3019-20.

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