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By XE Market Analysis August 22, 2019 3:06 pm
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    XE Market Analysis: Asia - Aug 22, 2019

    The Dollar was lower through N.Y. morning trade on Thursday, seeing the DXY fall from pre-open highs of 98.39 to lows of 98.08. The bulk of losses came following the Markit manufacturing PMI outcome, which dipped under the 50 bust/boom line for the first time since September of 2009. Activity slowed at mid-morning, as market focus shifts to Jackson Hole on Friday morning, (10:00 EDT) when Fed chair Powell will deliver a speech to the KC Fed's Economic Symposium: Challenges for Monetary Policy. The event has potential to shake up markets. Hopes are riding high that the Chairman will indicate further policy stimulus is on the way, though it remains to be seen. EUR-USD bottomed at 1.1064 into the open, later topping at 1.1099. USD-JPY meanwhile, fell to 106.32 lows, down from early highs of 106.63. USD-CAD bucked the trend, rallying to 1.3315 from 1.3275 as oil prices fell. Cable had a strong session, peaking at near one-month highs of 1.2273.

    [EUR, USD]
    EUR-USD printed three-week lows of 1.1064 into the N.Y. open on Thursday, later rallying to session highs of 1.1099 following the sub-50 U.S. manufacturing PMI. Ahead of the open, stronger EU PMI figures saw the Euro head to 1.1115 highs, though gains were quickly unwound. Negative European yields appear to be taking their toll on the currency, keeping the Dollar in demand in place for relatively high yielding U.S. Treasuries. This has likely been a major factor keeping EUR-USD under pressure, especially ahead of likely ECB easing in September, and perceptions that the Fed will not be as aggressive in easing as previously thought. Key EUR-USD level is the 27-month low of 1.1027 seen on August 1.

    [USD, JPY]
    USD-JPY rallied to 106.63 highs from pre-open lows of 106.25, as strong retailer earnings reports buoyed equities. A sub-50 manufacturing PMI print however, inverted the 20-10 Treasury yields curve, and pushed the Dollar lower. The pairing bottomed at 106.32, later steadying near 106.45. The risk-sensitive pairing can be expected to consolidate into Friday's much anticipated speech from Fed chair Powell, from Jackson Hole.

    [GBP, USD]
    Sterling had its best single day rally since March 13 against the dollar. Cable's high was 1.2273, which is the loftiest level seen since late July. The gains were sparked by comments made by German's Merkel, who indicated that a solution to the Irish border backstop conundrum is doable by the October-31 Brexit deadline. UK Prime Minister Boris Johnson followed this up by saying at his joint press conference with France's Macron that he was encouraged by his talks in Berlin yesterday, and that a deal, he thinks, can be done ahead of October 31. Macron, said, however, that while he has always respected the UK's decision to leave the EU, the European project has to be protected, to which the Irish backstop remains an important part of ensuring this. We think Merkel's remarks were little more than rhetorical platitudes, though enough to trigger a short squeeze in a heavy shorted currency.

    [USD, CHF]
    EUR-CHF found support over the 1.0900 mark in N.Y on Thursday, after touching near two-week highs of 1.0920 in London, following improved EU PMI figures. The cross printed a fresh 25-month low at 1.0835 last Thursday amid volatility in equity markets and recession-portending inversions of the U.S. and UK yield curves, which fed safe haven demand for the Swiss currency (despite the punishing -0.75% deposit rate). While risk conditions have improved since last week, we retain a bearish view of the cross given ECB's course to additional monetary stimulus in September, and the risk of a disorderly no-deal Brexit on October 31.

    [USD, CAD]
    USD-CAD peaked at 1.3315 at mid-morning, up from 1.3275 lows near the open. The sell-off in WTI crude prices following a sub-50 U.S. manufacturing PMI print was the driver of the rally, though with oil prices recovering some, USD-CAD slipped back under the 1.3300 level. Activity in the pairing is likely to slow ahead of Canada retail sales, and Fed chair Powell's speech from Jackson Hole, both on Friday morning.

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