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By XE Market Analysis September 18, 2019 3:46 pm
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    XE Market Analysis: Asia - Sep 18, 2019

    The FX market was quiet ahead of the FOMC announcement in N.Y. on Wednesday, with major pairings stuck inside of narrow trading bands. Incoming U.S. data was light, with housing starts much firmer than expected. There was little market reaction, however. The dollar rallied modestly following the FOMC announcement, where rates were cut by 25 basis points, as widely expected. The Fed's dot-plot indicated no more rate cuts this year, or next, which underpinned the Greenback. EUR-USD fell from near 1.1070 to intra day lows under 1.1015, as USD-JPY touched session highs over 108.35, up from 108.10. Wall Street turned lower on the announcement while Treasury yields moved up off their lows. USD-CAD topped at 1.3304 after the Fed, up from 1.3237 at the open. Cable meanwhile, peaked at 1.2494, later falling to 1.2457.

    [EUR, USD]
    EUR-USD was stuck between 1.1040 and 1.1070 through the morning session, with traders biding their time ahead of the Fed announcement. While the Fed cut rates by 25 basis points as expected, FOMC forecasts for no more cuts through 2020 weighed on the pairing, taking it to 1.1014 lows. Focus will shift back to superior U.S. economic growth versus the EU, and, despite today's rate cut, the still significant interest rate spread in favor of the USD.

    [USD, JPY]
    USD-JPY was sideways ahead of the FOMC announcement this afternoon, managing just a 108.10 to 108.24 trading band since the open, as traders remained sidelined. The pairing rallied over 108.35 after the Fed, later settling near 108.25. With the the FOMC now out of the way, focus will again shift to the risk-backdrop, where positive signs on the U.S./China trade front should keep the pairing in buy-the-dip mode. In the meantime, the BoJ policy announcement is due Thursday, and despite cuts by the ECB last week and the Fed this week, we expect the Bank to remain on hold for now. The domestic economy is doing fairly well, while market volatility has calmed of late. The BoJ will likely keep its remaining powder dry until the October meeting, when, depending on conditions, it could ease policy further.

    [GBP, USD]
    Cable moved above lows seen in the wake of cooler than expected UK inflation data, rallying to 1.2495 ahead of the Fed, then falling back to 1.2447 on the FOMC announcement. UK August CPI came in at 1.7% y/y, well off the median forecast for 1.9% y/y. The dip comes despite a 5%-plus weakening in the trade-weighted value of the pound from August 2018 levels, and despite UK wage growth hitting a near 10-year high recently. The policy implications of the data are also dampened by the fact that the BoE is likely to remain on the sidelines with the Brexit process coming to crucial phase of resolution, with the the outcome and potential impact on the UK economy still uncertain. Taking a step back, the pound is trading about 4% up from recent trend lows. We don't see too much scope for sustained gains, however, with markets likely to continue to demand a hefty Brexit discount into the upcoming election, which will likely be late November or early December.

    [USD, CHF]
    EUR-CHF bounced to six-week highs of 1.1018 in N.Y. on Wednesday, after falling to 1.0912 following the Saudi oil attack, where the CHF again showed its safe-haven credentials. With the U.S. appearing to wait and see with regard to Iran's actions, and the Saudis indicating oil production could resume sooner than initially expected, the cross was able to recover some.

    [USD, CAD]
    USD-CAD was on the move higher ahead of the Fed, rallying from 1.3256 lows seen after the in-line Canada CPI, then rallying to 1.3286 as WTI crude shed 2%. Following the Fed's less-than-dovish policy announcement, the pairing topped at 1.3310, a two-week high. A close under the 200-day moving average may prompt some overnight squaring of long positions. Canada July retail sales are due Friday.

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