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By XE Market Analysis May 25, 2018 6:18 am
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    XE Market Analysis: North America - May 25, 2018

    The dollar has been trading mixed so far today, sitting at near net unchanged levels versus the euro, firmer against the yen, the pound, and the Canadian dollar -- the latter of which was weighed on by accelerating declines in oil prices -- but moderately softer against the Australian dollar. EUR-USD has been re-established back above 1.1700 after earlier dipping to a 1.1684 low. An above-forecast German Ifo sentiment survey for May provided some added buoyancy to the euro. The dollar, although firming earlier, and although remaining near trend highs, has seemingly lost some traction, concomitantly with a softening in Fed tightening expectations. USD-JPY still recovered to the 109.50 area from yesterday's 17-day low at 108.95, as the yen saw some of its safe haven premium unwind as global stock markets recovered poise. North Korea said that it would still be willing to meet with the U.S. despite Trump's summit cancelation, and Mexico is reportedly set to make an offer to the U.S. in a bid to seal the NAFTA renegotiation.

    [EUR, USD]
    EUR-USD has been re-established back above 1.1700 after earlier dipping to a 1.1684 low. An above-forecast German Ifo sentiment survey for May provided some added buoyancy to the euro, although EUR-USD had already been lifting ahead of the data release. The dollar, although firming earlier, and although remaining near trend highs, has lost traction, concomitantly with a softening in Fed tightening expectations. Implied rates of Fed funds futures are still fully discounting in a 25 bp June tightening, and another in September, but the chances of a December move, which would be the fourth this year, have eroded to about 30% now. Also in the mix, and liable to keep EUR-USD's upside in check, is the unfolding policy formation of the new Italian government, which has been formed by an unlikely alliance of Eurosceptic right-wing and left wing populist parties. Overall, we remain bearish of EUR-USD in the big picture. Trend resistance comes in at 1.1734-35.

    [USD, JPY]
    USD-JPY has recovered to the 109.50 area from yesterday's 17-day low at 108.95. The lift has reflected part broader dollar firmness and par broader yen weakness. Stock markets recovered some poise Asia, and U.S. equity index futures also lifted some following a shaky session on Wall Street yesterday when the Trump administration cancelled the planned summit with North Korea. Pyongyang said today that it would still be willing to meet with the U.S. There are also reports that Mexico has made an offer to the U.S. in a bid to seal the NAFTA renegotiation. With sentiment improved, if not fully restored to a robust risk appetite, this has seen the yen track lower as some of its safe haven premium unwinds. USD-JPY's fundamental gauges are still flashing "buy," after all, with the Fed tightening cycle remaining on track while the BoJ is set to maintains monetary stimulus -- including its pegging of the 10-year JGB yield at near 0% -- into at least mid 2019, if not 2020, before exiting.

    [GBP, USD]
    Cable has settled in the mid 1.33s, above the intraday low at 1.3331 and Wednesday's five-month nadir at 1.3305. The dollar has seemed to have lost some upside traction, while the pound found some support on yesterday's release of above-forecast UK retail sales data. Today's second release of UK Q1 GDP was unrevised at 0.1% q/q growth, and 1..2% in the y/y comparison, as had been widely anticipated. The ONS stats office reported that while the bad weather that was seen during the quarterly, particularly in March, had some impact on the economy (particularly in construction and some areas of retail), the overall effect was limited, with partially offsetting impacts in energy supply and online sales. This assessment seemed a little at odds with the BoE view, with Governor Carney saying during parliamentary testimony this week that "temporary, idiosyncratic factors" slowed Q1 economic activity. Overall, we expect Cable to retain a flat to heavy bias. Support comes in at a 1.3330-31, and resistance at 1.3441.

    [USD, CHF]
    EUR-CHF has settled near 1.1600 after posting an 11-week low at 1.1581 on Wednesday, 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 1.1695, has been for technical analysts a significant bearish signal. Trend resistance is at 1.1642-44.

    [USD, CAD]
    USD-CAD has been underpinned by a broadly firmer U.S. dollar and by a relatively sharp retreat in oil prices, which are down by nearly 3.5% in the WTI benchmark market from the major-trend peak that was seen on Tuesday. Russia energy minister Novak earlier said that the OPEC-led supply restriction initiate could be "softly" eased on the view that global inventories are stabilized. The Canadian dollar has a correlative link to crude prices as it is key export of the Canada. USD-CAD posted a 10-day high at 1.2921 yesterday and has since remained buoyant. Technical analysts will be looking for a break and daily close above of the recent range high at 1.2924 to indicate scope for a sustained upside vault.

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