Home > XE Currency Blog > XE Market Analysis: North America - Jun 24, 2019

AD

XE Currency Blog

Topics6609 Posts6654
By XE Market Analysis June 24, 2019 7:15 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4549
    XE Market Analysis: North America - Jun 24, 2019

    The Dollar has started the week on a soft footing, which drove EUR-USD to a new three-month high at 1.1395, despite the sub-forecast German Ifo data. EUR-JPY also saw a new 11-day peak, while the common currency has remained buoyant against other currencies. The German Ifo business survey produced a Q2 headline reading of 98.2, down from 99.4 in Q1, although at least part of the headline weakness was due to one-off distortions created by the relatively late timing of Easter this year and stock building ahead of the original Brexit deadline. EUR-USD's gains today build on gains seen last week following more-dovish-than-expected Fed guidance and forecast-beating flash June Eurozone Composite PMI data. USD-JPY has been plying a narrow rang in the low-to-mid 107.00s, while EUR-JPY, AUD-JPY, and most other Yen crosses, posted fresh highs. AUD-JPY has been the biggest mover out of the main dollar pairings and associated cross rates, and was showing a 0.4% gain on the day as of the late London AM. The cross earlier posted an eight-day peak at 74.78, which was seen ahead of the open of European markets, amid a backdrop of buoyant stock markets in Asia, before a weak opening on European equity bourses saw cross, widely viewed a barometer of risk appetite in global markets, come off its highs. Rising U.S.-Iran tensions, and circumspection in market narrative about the chances of a significant improvement in U.S.-China relations, appear to be curtailing optimism fuelled by the recent dovish policy pivots of major central banks.

    [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 has been plying a narrow rang in the low-to-mid 107.00s, while EUR-JPY, AUD-JPY, and most other Yen crosses, posted fresh highs. AUD-JPY has been the biggest mover out of the main dollar pairings and associated cross rates, and was showing a 0.4% gain on the day as of the late London AM. The cross earlier posted an eight-day peak at 74.78, which was seen ahead of the open of European markets, amid a backdrop of buoyant stock markets in Asia, before a weak opening on European equity bourses saw cross, widely viewed a barometer of risk appetite in global markets, come off its highs. Rising U.S.-Iran tensions, and circumspection in market narrative about the chances of a significant improvement in U.S.-China relations, appear to be curtailing optimism fuelled by the recent dovish policy pivots of major central banks. Regarding the U.S. and China situation, while the recent return to dialogue is to be welcome, there remain concerns about the potential for a breakthrough after Beijing today indicated that FedEx Corp is likely to be added to Beijing’s "unreliable entities list," and after the U.S. Commerce Department said on Friday it was adding several Chinese companies to its national security "entity list." Assuming that the U.S and China continue to struggle to find a resolution, and assuming U.S.-Iran tensions continue to simmer, we would expect AUD-JPY to return to a downward trajectory. Last week's five-month low at 73.92 provides a downside waypoint.

    [GBP, USD]
    The Pound has stabilized after a phase of underperformance since early May. Markets over this time discounted the delayed Brexit deadline, the success of the Brexit Party at the UK's EU parliamentary elections, the resignation of former the prime minister, Theresa May, and the likelihood that she will be replaced by an arch Brexiteer, specifically Boris Johnson (despite the latest scandal), who takes a no-deal-if-necessary Brexit view. Focus will remain on the Conservative Party election process this week. The new prime minister should take up the reins by mid July, leaving just over three months until the October 31 Brexit. The economic consequences of the prolonged uncertainty has been increasingly evident, and the BoE last week trimmed its Q2 GDP growth estimate to 0.0% q/q from 0.2% while stating that inflation remains well anchored, although still retained guidance for gradual tightening over the three-year forecast horizon (which assumes a smooth and orderly 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 found a footing after coming under signifiant pressure last week, in the wake of ECB President Draghi's eyebrow raising dovish shift, 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 before recouping to the lower 1.1100s. The advance of the Franc against the Euro will doubtlessly be displeasing to 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 declined, reversing most of the rebound-from-three-month-lows that was seen on Friday. The low is 1.3181. Aside from the general softer U.S. currency, the pairing was also guided lower by fresh oil price gains. 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.

    Paste link in email or IM