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By XE Market Analysis May 2, 2018 6:49 am
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    XE Market Analysis: North America - May 02, 2018

    The dollar retreated some after posting fresh highs against the yen, sterling and some other currencies. Firmer than expected UK construction PMI data gave Cable some added lift, driving the Cable above 1.3860, up on the four-month low that was seen just ahead of the London open at 1.3580. EUR-USD has settled near 1.2000 after rebound from yesterday's 1.1981 four-month low stalled at 1.2032. The pair has remained comfortably below its 200-day moving average at 1.2054. USD-JPY edged a fresh 11-week high at 109.92 in early Tokyo trading, gaining despite declines in EUR-JPY and other yen crosses. Expectations for strong U.S. jobs data on Friday have been maintaining bid for the dollar on dips, where we expect a solid 210k headline rise and peg risks are to the upside following tight initial claims data and remarkable strength in consumer confidence and vehicle sales data. The Fed announces policy today, but this will likely be a non-event, with no policy change widely expected at this juncture and there being no press conference or forecast updates.

    [EUR, USD]
    EUR-USD has settled near 1.2000 after rebound from yesterday's 1.1981 four-month low stalled at 1.2032. The pair has remained comfortably below its 200-day moving average at 1.2054. This is the third consecutive week the pair has declined in what has become the sharpest run lower since November 2016. The breach and close below the 200-day moving average, yesterday, is the first time below this average since April 2017. Expectations for strong U.S. jobs data on Friday have been maintaining a bid for dollars, while timely survey data show that a cooling in economic growth is afoot, while ECB President Draghi gave dovish-tilting remarks following the central bank's April policy review last week. Regarding the U.S. payrolls report, we expect a solid 210k headline rise, though risks are to the upside following tight initial claims data and remarkable strength in consumer confidence and vehicle sales data. The Fed announces policy today, but this will likely be a non-event, with no policy change expected and there being no press conference or forecast updates. We advise EUR-USD trend following. Resistance is at 1.2054-60.

    [USD, JPY]
    USD-JPY edged out a fresh 11-week high at 109.92 in early Tokyo trading. Recent gains have been a reflection of dollar strength, with the yen in fact firming against the euro, sterling and Australian dollars, amongst other currencies. Stock markets in Asia retreated today amid caution into the Fed policy decision today, although we expect it to be a non-event with no change widely anticipated and with there being no press conference of updated forecasts. The geopolitical backdrop remains a concern, specifically at the moment with regard to what the Trump administration decides to do with regard to Iran's nuclear deal. Note that Tokyo markets will be closed both tomorrow and Friday, as part of the "Golden Week" holiday period. USD-JPY has gained for six successive weeks now. BoJ policy remains one of the fundamental pillars underpinning USD-JPY, with the central bank last Friday saying that while momentum for achieving its 2% inflation target has been maintained, it "lacks steam." The BoJ has also been purchasing "yield curve control" by pegging the 10-year JGB yield to near 0.0%. The other pillar has been the rise in U.S. Treasury yields, which last week breached above 3%. We have been advising following the trend. USD-JPY support comes in at 108.88-90.

    [GBP, USD]
    Sterling has rallied on post-data short covering, which has driven Cable over 30 pips higher to levels above 1.3860, EUR-GBP down over 30 pips to sub-0.8790 levels. The pound had already been lifting out of new lows by the time of the release of the April construction PMI, which rebounded more than expected to 52.0 from the previous month's weather-affected dive to 47.0. The data served as a cue to the interbank market and high-frequency trading accounts, who bought pounds in the hope of a more extended rebound. Cable had, just ahead of the London interbank open, posted a new four-month low at 1.3580. The 200-day moving average, presently situated at 1.3641, has become a level of note in market narratives, having yesterday been breached for the first time since April 2017. The return above here may be a sign that a base could be forming, following the biggest bear phase since October 2016. The UK April services PMI is up tomorrow, where we expect a 53.5 headline after a weak, weather-impacted 51.7 reading in March.

    [USD, CHF]
    EUR-CHF has entered a consolidative phase after making a 40-month on April 20th at 1.2005. The cross ebbed to a seven-session low at 1.1926 last week before finding a footing, subsequently rebounding to the mid-to-upper 1.1900s. The franc's return to the 1.2000 level was symbolic "normalisation" that's been afoot in global markets, being the first time the currency has traded below the SNB's former trading cap, which it abandoned in January 2015 in the face of broad and unstoppable euro depreciation caused by ECB monetary stimulus. EUR-CHF is some 12% higher from the levels of mid last year. The franc was driven lower by the -0.75% Swiss deposit rate along with the widespread expectation for the SNB to remain strongly committed to negative interest rates until after the ECB starts tightening. SNB's Jordan reaffirmed his commitment to loose monetary policy at central bank's annual general meeting last Friday. He that inflation remains low and inflationary pressure is modest "despite out expansionary monetary policy" and that tightening monetary conditions "would be premature at this juncture." Regarding the franc, Jordan said it remains "highly valued" and expressed a "continued willingness to intervene in the foreign exchange market as necessary."

    [USD, CAD]
    USD-CAD has remained buoyant, posting a one-month high of 1.2914 yesterday before retreating to the lower 1.2800s. The move extended a rebound from mid-April two-month low at 1.2527. A correction in oil prices, which have descended back under $68.0 in the WTI benchmark market after making a 40-month high at $69.56, along with a generally firmer bias in the U.S. dollar and associated rise in U.S. Treasury yields, have driven the rebound in USD-CAD. The Canadian dollar had already been coming off the boil in the wake of the April BoC policy meeting, as the statement indicated that the central bank would maintain its cautious stance on future policy changes, which remain data dependent. The latest price action in USD-CAD has negated the downside trend that had been in play over the prior three weeks, from levels near 1.3100.

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