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By XE Market Analysis June 18, 2018 6:47 am
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    XE Market Analysis: North America - Jun 18, 2018

    The dollar traded with little committed direction, overall, although it gained against an underperforming pound, as markets anticipate the BoE MPC meeting this week, and losing some ground to the yen, which was buoyed by burgeoning risk-off vibe in global markets. EUR-USD saw a low of 1.1565 and, subsequently, a 1.1610 high. Both the low and the high are comfortably within the range that was seen on Friday (1.1543 to 1.1627), and the prevailing price action can best be described as a consolidation of the sharp losses that were seen in the wake of the ECB's policy decision last Thursday. USD-JPY dipped to a low of 110.30, which is 60 pips below the high that was seen on Friday. The decline reflected moderate yen strength, seen amid the backdrop of next-level trade tensions. The risk averse backdrop has richened the yen's safe haven premium, which has more than offset otherwise bullish fundamentals for USD-JPY (given the contrasting Fed versus BoJ policy paths). Cable printed a low of 1.3226, drawing back in Friday's low is at 1.3211, and the seven-month low, seen on May 29, is at 1.3204. The pound also ebbed into 2- and 6-session lows against the euro and yen, respectively. The BoE MPC meeting this week is likely to acknowledge the run of overall softer data releases, although a no-change announcement is widely anticipated.

    [EUR, USD]
    EUR-USD has recovered the 1.1600 handle after more than reversing losses that were seen during the early part of the London AM session. The low is 1.1565 while the high, posted just earlier, is 1.1610. Both the low and the high are comfortably within the range that was seen on Friday (1.1543 to 1.1627), and we would characterise the prevailing price action as a consolidation of the sharp losses that were seen in the wake of the ECB's policy decision last Thursday, which wrapped a well-anticipated end-of-QE announcement with dovish-tilting guidance. The ECB's stance emphasizes the Fed's relatively hawkish stance, which should keep EUR-USD a sell-into-rallies trade. The pair's weekly close on Friday below the previous weekly close at 1.1659 affirmed bear trend credentials, and, after a two-week hiatus, the down trend that's been in evolution since mid April looks to be back in effect. EUR-USD has resistance is at 1.1627-30.

    [USD, JPY]
    USD-JPY dipped to a low of 110.30, which is 60 pips below the high that was seen on Friday. The decline reflected yen strength, seen amid the backdrop of next-level trade tensions following the Trump administration's slapping of tariffs on $50 bln worth of Chinese imports on Friday, and Beijing's near instant response of tariffs on U.S. imports. Trump is also reportedly considering putting tariffs on a further $100 bln worth of Chinese imports. The risk averse backdrop has richened the yen's safe haven premium, which has more than offset otherwise bullish fundamentals for USD-JPY (given the contrasting Fed versus BoJ policy paths). USD-JPY has support at 110.09-10.

    [GBP, USD]
    Sterling has underperformed in early-week trade as market participants anticipate the BoE MPC meeting, which is likely to acknowledge the run of overall softer data releases. Cable logged a low of 1.3226. Friday's low is at 1.3211, while a seven-month low, seen on May 29, is at 1.3204. The pound has also ebbed into 2- and 6-session lows against the euro and yen, respectively. While the BoE is widely anticipated to on Thursday announce a no change in the repo rate, to leave it at 0.5%, and leave QE totals unchanged, the statement and minutes will be of particular interest following a run of overall disappointing data so far available from April and May. We expect the BoE's guidance will reflect this, and expectations for a 25 bp rate hike as soon as August will likely be reduced to a more tentative call. We advise trend following with regard to Cable. Resistance is at 1.3297-98.

    [USD, CHF]
    EUR-CHF dropped to a 10-day low of 1.1525 on Friday and has remained heavy since. The losses followed the ECB's dovish guidance signal of last Thursday, which saw the cross tumble from levels above 1.1600. EUR-CHF is now 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 has remained buoyant after last week smashing through late May highs on route to posting a one-year high at 1.3210. The unexpectedly hawkish Fed guidance last 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, partly on the recent, sharp oil price declines (seen into the OPEC and Russia meeting this Friday), and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3019-20.

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