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By XE Market Analysis August 5, 2019 4:09 am
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    XE Market Analysis: Europe - Aug 05, 2019

    The Dollar has been trading mixed amid a mixed off backdrop, which has seen the safe-haven Yen outperform and the commodity-correlating Dollar bloc currencies, along with a good many developing world currencies, underperform. China's Yuan fell to an 11-year low below the politically sensitive 7.0 to the dollar level, which the PBoC blamed on "trade protectionism," and which has the potential to mark the point at which the trade war inflects from simmering to boiling. Bloomberg also reported that China asked state purchasers to half imports of American agricultural product. In the churn of sentiment-influencing factors are the pro-democracy protests in Hong Kong, which have disrupted flights and traffic, and the threat of a no-deal, disorderly Brexit scenario in less than three months, which has the potential to hit both the UK and EU-27 economies. USD-JPY was off its lows just ahead of the London interbank open, but still showing a 0.6% decline. The pair earlier hit a seven-month low at 105.78. AUD-JPY dove by over 1% in making a fresh seven-month low at 71.40. EUR-USD carved out a three-session high at 1.1132, while Cable headed in the opposite direction in falling to a 1.2112 low, which retraces over half of the gains the pair saw on Friday while returning the 31-month low seen last week at 1.2079 back into scope.

    [EUR, USD]
    EUR-USD carved out a three-session high at 1.1132, rising for a third consecutive session and building on the rebound from the 27-month seen last week at 1.1027. President Trump's ratcheting up of his trade war with China last week has increased the odds for Fed easing given the potential for a detrimental impact on the U.S. economy. This in turn has seen the Dollar weaken against some currencies, including the Euro. The ECB is geared-up for a turn of the stimulus spigot in September, however, which along with the threat of a disorderly, no-deal Brexit scenario in less than three months, should curtail EUR-USD's upside potential. Resistance comes in at 1.1160-65.

    [USD, JPY]
    USD-JPY fell by over 0.6% in hitting a seven-month low at 105.78. AUD-JPY, a cross which is particularly sensitive to escalations in the U.S.-China trade war, dove by over 1% in making a fresh seven-month low at 71.40. The Yen also traded higher against most other currencies, underpinned be safe-haven demand amid a coursing risk aversion in global markets. China's yuan fell to an 11-year low below the politically sensitive 7.0 to the dollar level, which the PBoC blamed on "trade protectionism," and which has the potential to mark the point at which the trade war goes from simmering to boiling. Bloomberg also reported that China asked state purchasers to half imports of American agricultural product. Amid the churn of sentiment-influencing factors are the pro-democracy protests in Hong Kong, which have disrupted flights and traffic, and the threat of a no-deal, disorderly Brexit scenario in less than three months, which has the potential to hit both the UK and EU-27 economies. USD-JPY looks likely to remain under pressure, at least while risk-off conditions persist. The pair has resistance at 106.34-36.

    [GBP, USD]
    The Pound last week racked up another down week, making it the 13th consecutive down week against the Euro, and its 10th down week out of the last 13 weeks versus the Dollar. We little scope for a rebound at the current juncture, with markets demanding a hefty discount in sterling due to the no-deal Brexit risk. Aside from the possibility of an October-31 overnight departure from the EU free trade area and its 40 trade agreements with 70 countries, there would also be a sharp increase in odds for the UK to devolve, as both Northern Ireland and Scotland would be at risk of voting themselves into independence as a means of remaining in the EU. (Note that the UK refers to the United Kingdom of Great Britain and Northern Ireland, while Great Britain is the union of England, Wales and Scotland, and Britain, without the "Great," comprises the union of England and Wales).

    [USD, CHF]
    EUR-CHF is down for a fourth consecutive day, this time printing a fresh 25-month low at 1.0882. The ECB's course to additional monetary stimulus in September, and risk aversion in global markets following Trump's latest escalation in his trade war with China, have been weighing on the cross. The risk of a disorderly no-deal Brexit on October 31 is also in the mix, which is a bearish factor for the cross.

    [USD, CAD]
    USD-CAD has remained buoyant despite the U.S. currency trading softer versus a good many other currencies. The Canadian currency, likes its Dollar bloc brethren, the Australian and New Zealand Dollars, have underperformed amid risk aversion in global markets. A near 5% decline in oil prices from month-ago levels is a particular drag on the Canadian Dollar. We expect the six-week high USD-CAD saw last week at 1.3266, to be revisited. Support comes in at 1.3180-83.

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