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By XE Market Analysis June 19, 2018 6:18 am
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    XE Market Analysis: North America - Jun 19, 2018

    The yen outperformed and dollar bloc and emerging market currencies underperformed amid global stock market declines after President Trump threatened China with $200 bln of fresh tariffs. A concurrent theme was euro weakness following remarks by ECB policymakers. USD-JPY printed a six-session low of 109.55. The biggest mover has been AUD-JPY, a cross rate which trades like a high beta asset (and thereby has a reputation of being something of a forex market risk-appetite barometer), losing over 1.3% and posting two-and-a-half-month lows under 81.0. Other yen crosses also delined, with EUR-JPY, for instance, foraying into three-week low territory under 127.40. EUR-USD tipped back to the 1.1550 area, almost a big figure below the intraday high that was seen during pre-European open trading in Asia. This followed circumspect remarks by ECB President Draghi and his colleague Liikanen, the former saying "we will be patient will the timing of the first and will take a gradual approach... thereafter" and the latter saying interest rates could be kept on hold until after the summer of 2019 if needed.

    [EUR, USD]
    EUR-USD has tipped back to the 1.1550 area, almost a big figure below the intraday high that was seen during pre-European open trading in Asia. The euro has underperformed generally, and only the Australian dollar out of the other main currencies is weaker on the day. The common currency is showing a 0.6% decline versus the dollar, and a 1.2% loss to the outperforming yen. The euro has been helped on its way lower by circumspect remarks by ECB President Draghi and his colleague Liikanen, the former saying "we will be patient will the timing of the first and will take a gradual approach... thereafter" and the latter saying interest rates could be kept on hold until after the summer of 2019 if needed. The Ifo institute also trimmed its German growth forecast. We had been advocating fading EUR-USD gains in the wake of the ECB's dovish-tilting guidance of last week, which put emphasis on the Fed's tightening path. After a two-week hiatus, the sharp declines since last Thursday have reaffirmed a down trend that's been in evolution since mid April. The weekly close on Friday below the previous weekly close at 1.1659 is consistent with Dow Theory's definition of a bear trend. EUR-USD has resistance is at 1.1597-1.1600.

    [USD, JPY]
    USD-JPY dropped to a six-session low at 109.55. The biggest mover has been AUD-JPY, a cross rate which trades like a high beta asset (and thereby has a reputation of being something of a forex market risk-appetite barometer). The cross has lost just over 1.3%, printing two-and-a-half-month lows under 81.0. Other yen crosses are also down, with EUR-JPY, for instance, foraying into three-week low territory under 127.40. In stock markets, China's Shanghai Composite has lost over 3%, while S&P 500 futures were showing an intraday loss of nearly 1% at one point.

    [GBP, USD]
    Cable has drifted below 1.3200 for the first time since last November. The pound is also down against the outperforming yen today, while is so far holding relatively steady against the euro. Cable continues to track EUR-USD direction closely, as has been the pattern in recent sessions. Markets are anticipating this week's BoE MPC meeting to hold policy unchanged while acknowledging a run of weaker data, the net result of which will likely be to push expectations for a 25 bp rate hike to the November MPC meeting, away from the August meeting. Brexit-related uncertainty remains in the mix, with a divided government still hammering out what type of Brexit -- soft or hard -- it wants. We have been 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 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 is up for a fourth consecutive session, printing today a fresh one-year high at 1.3240. The new high comes with trade tensions ratcheting up another gear with Trump threatening to levy a further tariffs on $200 bln worth of Chinese imports. This has hit the dollar bloc currencies, and follows the unexpectedly hawkish Fed guidance last week. We retain a bullish view of USD-CAD, partly on the Fed versus BoC policy outlook, and on the view that trade tensions are likely to drag for the foreseeable. Support is at 1.3159-60.

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