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By XE Market Analysis May 18, 2018 7:08 am
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    XE Market Analysis: North America - May 18, 2018

    EUR-USD ebbed back under 1.1800 as market participants cast a wary eye on political developments in Italy, though Wednesday's five-month low at 1.1763 remained untroubled. The 10-year U.S. T-note yield also touched a new seven-year high above 3.11%, before backing to around 3.10%. USD-JPY traded above 111.00 for the first time since January, a move driven principally by yen weakness following data showing a dip in Japanese inflation. Headline April CPI fell to a rate of 0.6% y/y from 1.1% y/y in March, while core CPI ebbed to 0.7% y/y from 0.9% y/y. The outcomes undershot market expectations, and should maintain the BoJ's ultra-accommodative monetary policy. Cable ebbed south of the 1.3500 level, remaining heavy after yesterday reversing out of a run higher above 1.3560 after the UK government dismissed a report that it was of a mind for Britain to remain in the EU customs union.

    [EUR, USD]
    EUR-USD ebbed back under 1.1800 as market participants cast a wary eye on political developments in Italy, though Wednesday's five-month low at 1.1763 remained untroubled. The 10-year U.S. T-note yield also touched a new seven-year high above 3.11%, before backing to around 3.10%. We retain a bearish view of EUR-USD. The surge in U.S. yields should keep the dollar a buy-on-dips trade, while the political evolutions in Italy, involving the anti-establishment Five Star Movement (which favours a whole array of policies, including "de-growth") looks likely to continue to stress market sentiment about the Eurozone. EUR-USD is in what is now its fifth consecutive weekly decline. Resistance is at 1.1845.

    [USD, JPY]
    USD-JPY traded above 111.00 for the first time since January. Yen weakness was the principal driver, which concurrently lifted yen crosses higher. AUD-JPY, for instance, clocked a one-month high. A dip in Japanese inflation data weighed on the yen. Headline April CPI fell to a rate of 0.6% y/y from 1.1% y/y in March, while core CPI ebbed to 0.7% y/y from 0.9% y/y. The outcomes undershot market expectations, and should maintain the BoJ's ultra-accommodative monetary policy. A Reuters survey of market economists earlier this week found that over half of respondents were expecting the central bank to refrain from exiting stimulative policy until 2020. We remain bullish of USD-JPY, anticipating the sharply contrasting Fed versus BoJ monetary policy stances likely to persist into 2019. Support is at 110.18-20.

    [GBP, USD]
    Cable ebbed south of the 1.3500 level, remaining heavy after yesterday reversing out of a run higher above 1.3560 after the UK government dismissed a report that it was of a mind for Britain to remain in the EU customs union. We retain a bearish view of Cable, partly on Brexit-related uncertainties, which has proved to be detrimental to business investment (as highlighted this week by the latest quarterly edition of the BoE Agent Report), and on the view that the Fed is likely to remain on a relatively hawkish policy path compared to the BoE for some time to come. Cable has support at 1.3478-80.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.1800s after yesterday posting a five-week low at 1.1771. Declines this week are marking the biggest intra-week decline since early January, interrupting a bull trend that's been in development since mid last year. Given that EUR-CHF is a good proxy of the Swiss franc's trade weighted value, and given Swiss policymakers view of the currency has still being overvalued, the latest price action won't been pleasing to the SNB, which can be expected to remain fully committed to its prevailing NIR policy. Former range lows at 1.1734-37, seen in early April, mark both a target and support.

    [USD, CAD]
    USD-CAD has been orbiting the 1.2800 level for over a week now. The recent ramp up in U.S. yields has been a support on the one hand, while the concurrent ramp up in oil prices have been a downward driver on the other hand, which have accounted for a choppy but net directionless price action. We expect more of the same. Support comes in at 1.2729-30. Today brings some top tier data out of Canada, with both April CPI and March retail sales data due. We expect headline CPI at 2.3% y/y, which would match the March rate. The BoC has indicated comfort with the elevated inflation rates, which has been above the 2.0% target mid-point since February, which policymakers have put down to temporary factors. As for retail sales, we expect a rise of 0.2% m/m. In-line outcomes shouldn't have a material impact on the Canadian dollar.

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