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By XE Market Analysis May 24, 2018 7:16 am
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    XE Market Analysis: North America - May 24, 2018

    The dollar has traded mostly softer, correcting a little after posting trend highs versus the euro and other currencies yesterday. Yesterday's FOMC minutes from the early May meeting took the upside fizz out of the dollar. The narrow trade-weighted USD index (DXY) is showing a 0.3% decline, at 93.75, down from yesterday's five-month high at 94.19. USD-JPY posted a 10-day low of 109.33 in Tokyo before recouping above 109.70. Stock markets have managed to mostly steady, but investor sentiment has remained fragile following belligerent rhetoric from North Korea and reports that the Trump administration is mulling a 25% levy on imported cars. EUR-USD found a toehold today after posting a five-month low at 1.1675 during the New York PM session yesterday. A rebound high was set at 1.1746 before the pair settled to the lower 1.1700s. In the Eurozone, data and policymaker speakers have been in abundance today. Upbeat remarks by ECB member Praet helped lift Bund yields. Italy remains in the spotlight, and while BTP yields have declined by over 7 bp today, they remain up by over 20 bp compared to a week ago. Cable lifted to a high of 1.3422, over a big figure up from yesterday's five-month low at 1.3305, aided upward by an above-forecast UK retail sales report today.

    [EUR, USD]
    EUR-USD has found a toehold today after posting a five-month low at 1.1675 during the New York PM session yesterday. A rebound high was set at 1.1746 before the pair settled back around 1.1730. Yesterday's FOMC minutes to the early May meeting took the upside fizz out of the dollar, as they showed a Fed not being in any particular hurry to tighten. Fed funds futures are still fully pricing in a 25 bp rate hike in June while showing odds of about 75% for a further quarter-point hike in September. On the Eurozone side of the pond, data and policymaker speakers were in abundance today, and upbeat remarks by ECB member Praet helped lift Bund yields. Italy remains in the spotlight, and while BTP yields have declined by over 7 bp today, they remain up by over 20 bp compared to a week ago, and risk remains that we see further market paroxysms as investors digest the formulating policies of the Eurosceptical coalition government. Big picture, we remain bearish of EUR-USD, though the 14-day RSI momentum indicator is highlighting that the extent and duration of the what is now a six-week down phase is stretched by historical price trend norms, suggesting there is a risk for a rebound or a levelling out in directional bias.

    [USD, JPY]
    USD-JPY and yen crosses have posted fresh lows during the Tokyo session before settling higher during the European AM session. A risk averse mood has continued to drive the yen upward amid a backdrop of mostly lower stock markets in Asia. News that the U.S. administration is weighing a 25% tax on imported cars to force concessions in NAFTA talks weighed on investor sentiment, while the North Korea has reverted to character, with its vice foreign minister saying today that it will not "beg the U.S. for dialogue" while threatening that America will "taste an appalling tragedy," warning of a "nuclear-to-nuclear showdown" if talks fail. USD-JPY posted a low of 109.33, which is a 10-day nadir.

    [GBP, USD]
    Cable lifted to a high of 1.3422, over a big figure up from yesterday's five-month low at 1.3305. A softer dollar following the release of the minutes to the early May FOMC meeting, which should the Fed remaining in a patient mood with regard to tightening, has helped the pair, and today's release of above-forecast UK retail sales providing added buoyancy. April retail sales rose 1.6% m/m, rebounding strongly from the steep, weather-affected 1.1% m/m decline that was seen in March. The median forecast had been for a 1.1% m/m gain. While the figures have been clouded by weather, a strong labour market and rising inflation-adjust average pay should underpin the sector, overall. The UK's April CPI, which was released on Wednesday, unexpectedly ebbed to 2.4% from 2.5% y/y in March, though this can be downplayed to a degree because of the early timing of Easter this year, while rising oil prices, if sustained, can also be expected to exert upside influence on inflation rates. The second estimate of UK Q1 GDP is due Friday, which should come in unrevised from the preliminary release outcomes of 0.1% q/q and 1.2% y/y. Big picture, we remain bearish of Cable, but still scope for a relatively sustained rebound in the meantime. Support is at 1.3353-55, and resistance comes in at 1.3450-52.

    [USD, CHF]
    EUR-CHF has settled higher, in the mid 1.1600s, after yesterday posting an 11-week low at 1.1581, which was the culmination of what has been the sharpest bout of declines the cross has seen since June last year. The driving dynamic has been a souring sentiment towards the euro on concerns about the policies of the newly forming anti-establishment and Eurosceptic coalition government in Italy. EUR-CHF is down over 3% from the 41-month that was printed a month ago at 1.2005, which was the summit of an 11-month rally phase, and which in turn was a reflection of what had been -- before recently -- a sense of abating existential risks that the Eurozone was facing. Now things look to be trending back in the other direction. This week's breach and daily closes below the 200-day moving average, presently situated at 1.1694, has been for technical analysts a significant bearish signal. Trend resistance is at 1.1722-24.

    [USD, CAD]
    USD-CAD has maintained a choppy, broadly sideways range that's been persisting for a month now. The low over this period has been 1.2729 and the high 1.2997. General U.S. dollar firmness has been met by Loonie-supportive higher oil prices, which has been causing volatility in USD-CAD but little net directional bias. We expect more of the same for now.

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