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By XE Market Analysis December 27, 2018 11:48 am
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    XE Market Analysis: Asia - Dec 27, 2018

    The Dollar has traded mixed as a risk-back-off theme coursed through thin year-end global markets. The biggest gainers out of the main currencies have been the Yen and Swiss Franc, while the biggest losers have been the Dollar bloc currencies. Oil prices and industrial commodity prices concurrently declined. The biggest movers were AUD-JPY and AUD-CHF, the latter of which was showing a decline of about 1.5% at the lows. USD-JPY ebbed back to the mid 110.00s, returning focus to the four-month low seen earlier in the week at 110.14. EUR-USD recouped to the mid 1.1400s, near the midway marker of a choppy sideways ranges that's been unfolding for nearly two months. Data showing weaker than expected industrial profits in China got the risk-off ball rolling again, while yesterday's outsized gains on Wall Street were an invitation for sellers, buoyed by a number of bearish narratives, to return in force. U.S.-China trade delegations are expected meet in January, though Trump is reportedly considering banning Huawei and ZTE telecoms firms from U.S. sales. The U.S. government shutdown also extended to its 5th day.

    [EUR, USD]
    EUR-USD has settled near 1.1400, comfortably below the six-week high seen last week at 1.1485. Political uncertainty in the U.S. has become a worry for investors, while the Fed's refrain last week from indicating a pause in the rate hike cycle, as many market participants had expected, saw the Dollar recoup lost ground. The Euro has also been experiencing conflicting forces, with signs of flagging economic growth momentum on the one hand, and a rally in Italian assets on the back of a credible, Brussels-appeasing budget proposal, on the other. In the bigger view, we see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a lower Fed tightening trajectory. Support comes in at 1.1356-58, and resistance at 1.1439-40.

    [USD, JPY]
    USD-JPY ebbed back to the mid 110.00s, returning focus to the four-month low seen earlier in the week at 110.14, a risk-back-off theme coursed through thin year-end global markets. The biggest gainers out of the main currencies have been the Yen and Swiss Franc, while the biggest losers have been the Dollar bloc currencies. Oil prices and industrial commodity prices concurrently declined. The biggest movers were AUD-JPY and AUD-CHF, the latter of which was showing a decline of about 1.5% at the lows. Data showing weaker than expected industrial profits in China got the risk-off ball rolling again, while yesterday's outsized gains on Wall Street were an invitation for sellers, buoyed by a number of bearish narratives, to return in force. U.S.-China trade delegations are expected meet in January, though Trump is reportedly considering banning Huawei and ZTE telecoms firms from U.S. sales. The U.S. government shutdown also extended to its 5th day. We take a bearish view of the pairing on the view that global stock markets will entered a bear phase, correcting after a near decade winning streak as the era of ultra-accommodative monetary policy unravels. The U.S. versus China standoff also looks to sustain, especially with other nations charging Beijing with corporate espionage.

    [GBP, USD]
    The Pound is entrenched in a sideways range versus most currencies. Cable is settled in the mid 1.2600s, continuing a broadly sideways range that has been unfolding over the holiday period, which follows a sustained period of Brexit-related declines, which left a 20-month low versus the dollar at 1.2476 on December 12. The London interbank market has reopened today, but will be operating at skeletal staffing levels through to the new year. In the new year, the UK Prime Minister will likely continue to plug away in her diplomatic effort to sweeten the Brexit deal, although it's clear that there won't be any renegotiation by the EU. This suggests that the Withdrawal Agreement from the EU is headed for eventual failure in the UK Parliament. The parliamentary vote on the Brexit deal and outline for a future relationship will take place in the week of January 14, before the legislated deadline of January 21. Our best guess remains that Parliament will vote down the deal and, of all the possible scenarios at that point, that a new EU referendum will be the path of least resistance. We anticipate that the Pound with remain a sell-into-gains trade into the vote, but also see potential for the currency to rally between 5% and 10% as we expect disorderly no-deal Brexit scenario to be avoided.

    [USD, CHF]
    EUR-CHF has settled near 1.1300, remaining comfortably above the two-and-a-half month low seen earlier in the month at 1.1225. The SNB remained firmly on hold at its quarterly policy meeting this month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD has settled near 1.3600, printing a 19-month high this week at 1.3619. While the Fed has shifted to a lower tightening trajectory, oil prices and other industrial commodity prices tumbled to fresh trend lows on global growth concerns. This backstop, which looks likely to sustain well into 2019, should keep USD-CAD biased towards the upside. Support comes in at 1.3520. The 2017 high at 1.3793 provides an upside waypoint.

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