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By XE Market Analysis October 28, 2019 2:49 pm
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    XE Market Analysis: Asia - Oct 28, 2019

    The Dollar was mixed overall in N.Y. trade on Monday, with USD-JPY leading the gainers. That pairing briefly topped at 109.04, a near three-month high. EUR-USD was range bound between 1.1085 and 1.1101. USD-CAD printed three-month lows of 1.3050, while GBP-USD topped at 1.2875. Data included a narrowed advance goods trade report, and a weaker Dallas Fed index. Neither had much impact on the USD. FX market focus will shift to the FOMC announcement on Wednesday, where a 25 basis point rate cut is expected. Barring unexpected forward guidance from the Fed, The Dollar will likely take a rate cut in stride, as the outcome has been fully priced in.

    [EUR, USD]
    EUR-USD found support ahead of Friday's seven-session lows of 1.1073, basing at 1.1076 in Asian dealings, before topping at 1.1107 into the N.Y. open. A round of short covering has been cited as being behind the modest bounce, though the pairing remains in sell-the-rally mode. Last week's ECB announcement and press conference were surprise-free, though with the QE program set to be fired up again, and the Bank saying the "Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge", the Euro is likely to remain under pressure. The FOMC rate cut, expected on Wednesday, has been fully priced in, and should have little impact on the USD.

    [USD, JPY]
    USD-JPY printed eight-session highs of 108.94, in morning trade, matching the October 17 highs. Risk-on trade, featuring higher equities and higher Treasury yields drove the pairing. Hopes for a partial U.S./China trade deal supported, though talk of Japan exporter offers from the 109.00 level, and the 200-day moving average at 109.05 will likely limit upside going forward. Indeed, after the London close, the Dollar briefly topped at 109.04 before easing back toward 108.90. Further easing from the BoJ on Wednesday (we expect no change in policy) could boost the Dollar over the key levels, though a likely Fed cut has already been fully priced in.

    [GBP, USD]
    Cable rallied over 1.2875 in N.Y. on Monday, after opening near 1.2825. Regarding Brexit, there is speculation that the Labour Party might support the LibDem and SNP bill on calling an election, which is subject to a no-deal Brexit being ruled out, satisfying a key Labour demand. This, along with the EU's granting of a three-month extension, is seen as a positive cue for the pound. The bill will be tabled tomorrow, while reports suggest that the government will also table a similar bill calling on a general election tomorrow, should its motion calling for an election fail today. UK parliamentary technicalities mean that triggering an out-of-cycle election via legislature requires only a simple majority to pass in a vote, while a motion issued by the government that calls for an election only requires two thirds of the vote. As things stand, an election is on the cards for early December. PM Boris Johnson's Conservative Party is leading in the polls by 13 points (according to Politico's poll tracker), though voting pacts among opposition parties will pose a threat to Boris.

    [USD, CHF]
    EUR-CHF topped at eight-session highs of 1.1059 in N.Y. on Monday, steadying above 1.1000 through Friday's session. The worst case for Brexit appears to be behind us now, as the EU agreed to an extension on Monday. Politics will step in now, with a U.K. election expected in December.

    [USD, CAD]
    USD-CAD fell to fresh three-month lows of 1.3050 into the North American open, later rallying to 1.3072 on domestic name short covering, and general USD strength. The pairing later headed lower, testing the 1.3050 level again as WTI crude prints one-month highs near $56.90. Focus will quickly shift to the Fed and BoC policy announcements, both on Wednesday, where the FOMC is expected to cut rates by 25 basis points, while the BoC will likely keep rates steady. This outcome will keep the CAD supported, virtually eliminating the USD's interest rate advantage. The next downside target comes at 1.3016, the 2019 low.

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