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XE Market Analysis: North America

The Dollar has lost traction after the Fed's Bullard said that a rate cut may be in order if inflation continues to disappoint. There are also expectations for today's release of FOMC minutes to evidence a shift to an overall more dovish stance, including suggestions to slacken inflation targeting. EUR-USD has found support after printing a 19-day low yesterday at 1.1142, while USD-JPY settled under 110.50, a little below the two-week high seen yesterday at 110.67. European and Asia stock markets have traded narrowly, although Chinese markets came under some pressure into the close. China's CSI 300 closed 0.5% for the worse. There have been mixed messages from U.S.-China trade front, though there seems to be an overall and significant deepening in underlying tensions with the U.S. considering blacklisting China's Hikvision, and others, according to sources cited by Bloomberg. Elsewhere, a promise from Prime Minister May of a "new" Brexit deal late yesterday had given Sterling a lift, but the currency has since more than reversed lower after it became clear to be a flop in the popularity stakes after she unveiled details, with many key players on different sides of the British political spectrum greeting the new offerings negatively. Cable printed a fresh four month low at 1.2662, and the Pound hit new three-month lows against the Euro. Now more than ever the prime minister's resignation looks to be a fait accompli.

[EUR, USD]EUR-USD has found support after printing a 19-day low yesterday at 1.1142. Fed's Bullard said that a rate cut may be in order if inflation continues to disappoint and there are expectations for today's release of FOMC minutes to evidence a shift to an overall more dovish stance, including suggestions to slacken inflation targeting. This may take the wind out of the Dollar's sails and leave EUR-USD a more neutral trajectory. The pair has resistance coming in at 1.1200-05, support at 1.1120-23.

[USD, JPY]USD-JPY has settled to a narrow consolation near 110.50, a little below the two-week high seen yesterday at 110.67. Wall Street closed higher yesterday, and European and Asia stock markets have traded narrowly, although Chinese markets came under some pressure into the close. There have been mixed messages from U.S.-China trade front, though there seems to be an overall and significant deepening in underlying tensions. Assuming that the U.S.-China trade war both deepens and persists, as is starting to look likely, this would likely set the Yen up for bouts of outperformance in the weeks and months ahead. USD-JPY has support at 110.05-08, and resistance at 110.80-82.

[GBP, USD]A promise from Prime Minister May of a "new" Brexit deal late yesterday had given Sterling a lift, but the currency has since more than reversed lower after it became clear to be a flop in the popularity stakes after she unveiled details, with many key players on different sides of the British political spectrum greeting the new offerings negatively. Cable printed a fresh four month low at 1.2662, and the Pound hit new three-month lows against the Euro. Now more than ever the prime minister's resignation looks to be a fait accompli, with the only question remaining whether she still goes through the motions of a new parliamentary vote on her thrice failed Withdrawal Agreement, which is scheduled to be voted on in the House of Commons for a fourth time in early June -- and which would looks a near certainty to fail -- or leave before this inevitability. The problem for May is that things have moved on. The middle ground for Brexit, that is a "soft" version of leaving the EU (severing political ties while remaining economically tethered via continued membership of the single market and/or customs union), looks to have collapsed with the debate polarizing to support for either a hard no-deal-exit-if-necessary Brexit on the one hand, or a remain-in-EU on the other. The newly established Brexit Party, which advocates a no-deal exit from the EU, has come from nowhere to dominate polling ahead of the elections for UK's seats in EU Parliament this week. For now, we continue to advise trend following with regard to Cable. The pair has resistance coming in at 1.2737-40.

[USD, CHF]EUR-CHF yesterday posted a five-week low at 1.1255. The cross has now corrected over half of the gains seen during the pronounced rally that was seen in April. The SNB's Alternate Governing Board Member Moser said last week that in his view "if we had higher interest rates then we would have a stronger exchange rate", something the central bank is eager to prevent. The SNB continues to bank on the combination of a negative deposit rate and the threat of ad hoc currency intervention to keep the CHF under control, while trying to limit the impact of the negative rates on the domestic economy with the help of macroprudential instruments. Moser said so far the risks in the Swiss real estate sector remain bearable, although he admitted that in the current environment these could increase. EUR-CHF has resistance at 1.1320-23.

[USD, CAD]USD-CAD etched out a 12-day low at 1.3395. The move came despite a fall in oil prices, and after Fed's Bullard said that a rate cut may be in order if inflation continues to disappoint. There there are also expectations for today's release of FOMC minutes to evidence a shift to an overall more dovish stance, including suggestions to slacken inflation targeting. This may take the wind out of the Dollar's sails and leave USD-CAD with a downside bias for now. The pair has support coming in at 1.3380, and resistance at 1.3422-25.

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