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By XE Market Analysis June 20, 2018 6:49 am
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    XE Market Analysis: North America - Jun 20, 2018

    The dollar has traded firmer, for the most part, though directional commitment has been limited. USD-JPY lifted moderately amid steadying in stock markets in Europe and Asia, and rebound gains in U.S. equity index futures. The pair printed a high of 110.25, putting a little distance in from yesterday's 10-day low at 109.55. A plethora of investor-soothing remarks from officials in Beijing, including the PBoC proposing to lower reserve ratio requirements for Chinese banks, helped divert attention from Sino-U.S. trade tensions. Elsewhere, EUR-USD recovered to the mid 1.1500s after posting a three-week low at 1.1531 yesterday following dovish-tilting remarks from ECB policymakers yesterday, which were followed up today by member Villeroy, albeit to less impact this time. Cable, meanwhile, posted seven-month lows under 1.3150, and USD-CAD rallied for a fifth consecutive session, today printing a fresh one-year high at 1.3311. The Aussie dollar, in contrast to the Loonie, rallied, as did emerging market currencies as high beta assets found some reprieve.

    [EUR, USD]
    EUR-USD recovered to the mid 1.1500s after posting a three-week low at 1.1531 yesterday following dovish-tilting remarks from ECB policymakers yesterday, which were followed up today by member Villeroy, albeit to less impact this time. ECB President Draghi said yesterday that "we will be patient will the timing of the first and will take a gradual approach... thereafter." 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 has lifted moderately amid a steadying in stock markets in Asia, even though the Sino-U.S. trade spat is likely remain a concern for investors, with both the Trump administration and Beijing looking entrenched in opposing positions. The pair has printed a high of 110.25, which put a little distance in from yesterday's 10-day low at 109.55. Fundamentals remain unambiguously bullish, given the Fed's course for further monetary policy tightening and the BoJ likely to remain committed to ultra-accommodative policy -- including the pegging of 10-year JGB yields at near 0% -- well into 2019, and even 2020. However, we still would advise fading USD-JPY gains given the heightened potential for further bouts of risk-off conditions in global markets as the trade war evolves.

    [GBP, USD]
    Cable printed fresh seven-month lows under 1.3150, price action that has reaffirmed the downtrend that's been evolving for two months now. 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. The House of Commons votes late today on whether to given parliament a "meaningful" vote on the eventual final terms (on divorcee and future relationship with the EU). We have been advising trend following with regard to Cable. Resistance is at 1.3230.33.

    [USD, CHF]
    EUR-CHF has settled back above 1.1500 after printing a three-week low at 1.1487 yesterday. The cross has been under pressure since the ECB's dovish guidance signal of last Thursday. 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 fifth consecutive session, printing today a fresh one-year high at 1.3311. Last week's unexpectedly hawkish Fed guidance, a possible easing in oil supply quotas by OPEC and Russia (to be decided at Friday's meeting in Vienne), and ratcheting trade tensions have all been supportive drivers of USD-CAD. 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 1.3227-30.

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