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By XE Market Analysis June 21, 2019 7:12 am
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    XE Market Analysis: North America - Jun 21, 2019

    The Dollar majors have been trading mixed, with the U.S. currency itself consolidating, on net, following a two-day phase of underperformance. EUR-USD lifted out of the intraday low at 1.1283 at the trigger of forecast-beating flash June PMI estimates out of Germany and France, which drove the June flash Eurozone Composite PMI to a seven-month high of 52.1, up from 51.8 in May. A high was left at 1.3317, matching yesterday's nine-day peak. USD-JPY recouped to levels around 107.50 after printing fresh five-month low at 107.04 during the Tokyo session. A combo of ramped-up expectations for Fed rate cuts, coupled with a rekindling risk-off vibe in global markets amid concerns about the escalation in U.S.-Iran tensions, pushed the pairing lower. Stock markets in Asia and Europe went back into sputtering mode. S&P 500 futures were showing a modest decline of 0.2%, as of the early European PM session, after the cash version of the index closed at record highs yesterday. Cable drifted lower, correcting after posting a nine-day high at 1.2727 yesterday. The Pound concurrently came under pressure against the Euro and other currencies with markets struggling to be bullish about the pound, at least over the near- to mid-term. USD-CAD found a toehold after plunging sharply to a near four-month low at 1.3151, a move that was partly driven by yesterday's 7%-plus surge in oil prices.

    [EUR, USD]
    EUR-USD lifted out of the intraday low at 1.1283 following forecast-beating flash June PMI estimates out of Germany and France, which drove the June flash Eurozone Composite PMI to a seven-month high of 52.1, up from 51.8 in May. A high was left at 1.3315, 2 pips shy of the nine-day peak seen yesterday, which had been the culmination of the post-FOMC dollar selling spree. 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 a rough equilibrium or sorts. Resistance comes in at 1.1347-50.

    [USD, JPY]
    USD-JPY recouped to levels around 107.50 after printing fresh five-month low at 107.04 during the Tokyo session A combo of ramped-up expectations for Fed rate cuts, coupled with a rekindling risk-off vibe in global markets amid concerns about the escalation in U.S.-Iran tensions, pushed the pairing lower. While Wall Street closed higher yesterday amid the continued glow of expected Fed accommodation, sentiment has spoiled today in Asia, while S&P 500 futures posted moderate losses. This revived some safe-haven demand for the yen. EUR-JPY printed a three-week low, and AUD-JPY saw losses, although remained above recent trend lows. Assuming Mideast geopolitical tensions remain a global market influencer, we would expect USD-JPY to remain downwardly biased.

    [GBP, USD]
    Cable drifted lower, correcting after posting a nine-day high at 1.2727 yesterday. The pound concurrently came under pressure against the euro and other currencies with markets struggling to be bullish about the pound, at least over the near- to mid-term. The BoE yesterday trimmed its Q2 GDP growth estimate to 0.0% q/q from 0.2% while stating that inflation remains well anchored, although retaining guidance for gradual tightening over the three-year forecast horizon (which assumes a smooth Brexit process). 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 while the no-deal-Brexit-if-necessary Boris Johnson continues to look the prime minister in waiting. Cable has resistance at 1.2758-60.

    [USD, CHF]
    EUR-CHF has come under pressure in the wake of ECB President Draghi's dovish shift this week, which has been the most notable of a growing chorus of dovish voices on the central bank's governing council. The cross printed a 23-month low at 1.1057 yesterday before recouping to the lower 1.1100s. The advance of the Franc against the Euro will doubtlessly be displeasing for the SNB (the EUR-CHF cross being a good proxy on the Swiss currency's trade weighted value). The SNB restated at its quarterly policy review this month 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. With the ECB increasingly under pressure to ease policy again, the SNB remains eager to counter Franc appreciation, especially against the Euro. Assuming the ECB remains on the path of further monetary policy easing, we would expect EUR-CHF retain a declining bias. The SNB's -0.75% deposit rate and threat of tactical intervention hasn't been sufficient to arrest recent appreciation of the Franc.

    [USD, CAD]
    USD-CAD found a toehold after plunging sharply to a near four-month low at 1.3151, a move that was partly driven by yesterday's 7%-plus surge in oil prices. Sharp oil price movements tend to impact the Canadian Dollar given its potential impact on Canada's terms of trade. Given the Fed's dovish turn, and assuming that U.S.-Iran tensions remain elevated, we would expect USD-CAD to remain heavy. Resistance comes in at 1.3240-45.

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