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By XE Market Analysis June 18, 2019 6:38 am
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    XE Market Analysis: North America - Jun 18, 2019

    The Dollar traded firmer by virtue of the Euro taking a tumble amid a mix of soft Eurozone data and dovish remarks from ECB President turn, the Pound taking a hit as it becomes ever more likely that arch Brexiteer Boris Johnson will be the new UK prime minister, and the Australian Dollar taking a spill following the release of the RBA's June-meeting minutes, which signalled that a follow-up rate cut is in the works. Amid this, the USD index floated to a 15-day peak at 97.73, making this the fifth consecutive day of higher highs. The index had tumbled by nearly 2% between late May and June 7, when it hit a three-month low at 96.46. Since then expectations for the Fed to cut rates as soon as next month have plateaued while competing cases for easier monetary policy have emerged elsewhere. EUR-JPY led the quite sharp turn lower in the Euro, which saw EUR-USD tumble by over 50 pips in printing a two-week low at 1.1181. EUR-JPY dove by an even greater magnitude and also hit a two-week low, at 121.08. ECB President Draghi said that rate cuts and an expansion in quantitative easing are options if the outlook doesn't improve. The latest German ZEW survey also underwhelmed, while the Ifo institute announced a downward revision to its 2020 growth forecast for the Eurozone's dominant economy, to 1.7% from 1.8% previously envisioned. Cable, meanwhile, printed a five-month low at 1.2512, while AUD-USD also reached a five-month nadir, at 0.6831. USD-JPY carved out a two-session low at 108.19 in Tokyo trading before finding a footing in Europe.

    [EUR, USD]
    EUR-JPY led a quite sharp turn lower in the Euro, which saw EUR-USD tumble by about 50 pips in printing a two-week low at 1.1188. EUR-JPY dove by an even greater magnitude and also hit a two-week low, at 121.16. Markets hit the euro sell button after ECB President Draghi said that rate cuts and an expansion in quantitative easing are options if the outlook doesn't improve. Draghi's remarks follow those of ECB's Coeure, who yesterday hinted that rate hikes and interest rate tiering may be on the agenda in the coming months, while his colleague De Cos said that the central bank is ready to act to counter disinflation if necessary. In the mix was the Ifo institute announcing a downward revision to its 2020 growth forecast for the German economy, to 1.7% from 1.8% previously envisioned. We had been advising that while attention on late has been on richening odds for a Fed easing as soon as July, that incoming data on the Eurozone side of the pond would likely provision a reminder that the pressure is also on the ECB to entertain an easing in monetary policy. EUR-USD's tumble breached support at 1.1200-02, while the decline so far this week has reversed over thee quarters of last week's gain, which was the biggest weekly advance the pairing has seen since August last year. Last week's low is at 1.1160. Bigger picture, EUR-USD has been in a bear trend since early 2018, though downside momentum has abated markedly in recent months, with the pairing looking to have found an equilibrium.

    [USD, JPY]
    The Yen has remained underpinned amid a backdrop of sputtering global stock markets. USD-JPY carved out a two-session low at 108.19. EUR-JPY also declined, aided lower by dovish remarks from ECB President Draghi, while GBP-JPY and AUD-JPY both printed new five-month lows, the latter helped on its way by the release of the RBA minutes from the early June policy meeting, which signalled a follow-up rate cut is in the pipeline. In Japan this week, the BoJ meets Wednesday-Thursday, and is widely expected to maintain unchanged policy, attached with more-stimulus-if-needed-down-the-road guidance. Governor Kuroda last week told Bloomberg that the central bank had further tools in its stimulus toolkit, though he said further accommodation was not needed at the present juncture. In data, Japan's May trade report (Wednesday) should see the prior JPY 56.8 bln surplus flip to a JPY 1,000 bln deficit. May national CPI (Friday) should see overall inflation fall to 0.6% y/y from 0.9%, while on a core basis, we expect a 0.5% y/y reading versus 0.9% in April. We don't anticipate either the BoJ of this week's data releases will have much directional bearing on the Yen, which will be more sensitive to geopolitical and trade tensions and consequential ebb and flow of the Japanese currency's safe-haven premium. U.S.-China trade tensions have taken a back seat ahead of next week's G20 gathering, although the lack of preparatory ministerial-level meetings before the summit suggests that the best that could be hoped for is cordiality between the two sides. If not, we would expect USD-JPY to resume a downward path. The pair has resistance at 108.80-85.

    [GBP, USD]
    Sterling tumbled to fresh five-month lows against the Dollar, Euro and Yen. Cable's low is 1.2512, with the pair showing a week-on-week decline of more than 1.5%. Markets are continuing to adjust to the recent ratchet higher in risks for the UK leaving the EU without an agreement on divorcing terms or an outline for a future trading relationship, which would see the nation adopt trading on WTO terms. This comes with Boris Johnson remaining the strong favourite to become the new prime minister. There is no data of note out of the UK until May inflation and retail sales reports, due this Wednesday and Thursday, respectively. The BoE's Monetary Policy Committee meet this week, announcing Thursday, though no changes are widely anticipated in both actual policy and guidance. The Brexit process, meanwhile, remains on ice as the the Conservative Party's leadership contest ensues. We estimate that the UK currency has been trading with a 10-15% trade-weighted Brexit discount since the vote to leave the EU in June 2016, and don't see much scope of this reversing anytime soon. Cale has resistance at 1.2600-05.

    [USD, CHF]
    EUR-CHF dropped back to the 1.1200 area after last week scaling a three-week high at 1.1264. The decline was driven by the Swiss Franc, which rallied in the wake of the SNB policy announcement last Thursday. There didn't appear to be a specific catalyst, and the SNB's message was in fact dovish, stating that downside risks to the economy have increased and that the overall policy setting "remains as expansionary as before." The central bank also nudged its inflation forecast lower, now expecting CPI to average just 0.6% y/y this year, 0.7% in 2020, and 1.1% y/y in 2021. The currency had weakened earlier last week as market participants eyed the policy decision, so the price action looks to have been a buy-the-rumour-sell-the-fact type of reversal. With the ECB increasingly under pressure to ease policy again, the SNB remains eager to counter Franc appreciation, especially against the Euro. UR-CHF posted a 23-month low at 1.1119 earlier in the month. Assuming U.S.-led trade tensions continue, and assuming the ECB remains on the path of further monetary policy easing, we would expect EUR-CHF retain a directionally downward bias. The SNB's -0.75% deposit rate and policy of tactical intervention hasn't been sufficient to arrest recent appreciation of the Franc.

    [USD, CAD]
    USD-CAD has settled near 1.3400, just below the two-week high seen last Friday at 1.3422. The high put in some more distance from the three-month low earlier in June at 1.3243. Softer oil prices, which are down by over 16% from levels seen a month ago, have imparted a downward spin on the Canadian currency, even though the improvement in U.S.-Mexican relations bodes well for the new yet-to-be-Congressionally-ratified North American trade agreement. USD-CAD has support 1.3350.

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