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By XE Market Analysis August 6, 2019 3:41 am
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    XE Market Analysis: Europe - Aug 06, 2019

    High volatility has been the flavour of the day, with the Yen dropping sharply after posting fresh trend highs during the Tokyo AM session. The Japanese currency's highs were seen after U.S. Treasury Secretary Mnuchin officially stamped China as a currency manipulator, while the Yen's fallback was see after the PBoC produced a lower than expected USD-CNY fixing, at 6.9683, which followed a statement by the central bank governor, Yi Gang, that Beijing will stick to commitments "not to use exchange rates for competitive purposes." USD-JPY surged to a rebound high of 107.09 after earlier printing a seven-month low at 105.52. EUR-JPY rallied to a 119.87 peak from a Tokyo low at 118.37. Stock markets in Asia remained under pressure, despite the PBoC's mollifications, with market narratives, and RBA Governor's post policy meeting statement today, reflecting a sharpening in concerns about a significant deepening in the trade conflict between the U.S. and China. Regarding the RBA, policy was left on hold, as was widely anticipated after back-to-back rate cuts in June and July, but Governor Lowe said that more easing measures could be needed. AUD-USD, which declined for 12 consecutive days through to yesterday, managed to find a toehold, aided by a rebound in AUD-JPY and an "on the fact" type of reaction to the RBA's decision and guidance. The pair lifted to the upper 0.6700s, putting in a little space from the seven-month low seen yesterday at 0.6748. Elsewhere, EUR-USD posted an 18-day high at 1.1249 before correcting to levels around 1.1200. Cable maintained a narrow range near 1.2150.

    [EUR, USD]
    EUR-USD posted an 18-day high at 1.1249 before correcting to levels around 1.1200. The new high racks today up as the fourth consecutive session of higher highs, 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 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 in1.1250, and support at 1.1160-65.

    [USD, JPY]
    The Yen dropped sharply after posting fresh trend highs during the Tokyo AM session. The Japanese currency's highs were seen after U.S. Treasury Secretary Mnuchin officially stamped China as a currency manipulator, while the Yen's fallback was see after the PBoC produced a lower than expected USD-CNY fixing, at 6.9683, which followed a statement by the central bank governor, Yi Gang, that Beijing will stick to commitments "not to use exchange rates for competitive purposes." USD-JPY surged to a rebound high of 107.09 after earlier printing a seven-month low at 105.52. EUR-JPY rallied to a 119.87 peak from a Tokyo low at 118.37. Stock markets in Asia remained under pressure, despite the PBoC's mollifications, with market narratives, and RBA Governor's post policy meeting statement today, reflecting a sharpening in concerns about a significant deepening in the trade conflict between the U.S. and China. USD-JPY's should remain to the downside, at least while risk-off conditions persist. The pair has resistance at 107.28-30.

    [GBP, USD]
    Sterling has put in a mixed performance so far this week, having gained on the Dollar and Dollar-bloc currencies while having lost ground to the Euro and Yen. The UK currency was given a boost yesterday at the short-squeezing prompt of an above-forecast reading in the UK's July services PMI. We see little scope for a sustained rebound in the currency at the current juncture, however, with markets demanding a hefty discount in sterling due to the no-deal Brexit risk. The BBC cited a member of the Institute for Government think tank saying even in the event that Boris Johnson's government is brought down in a confidence motion, Johnson would still have the right to stay on as prime minister up to the point there is a general election, which he could time to be after the October-31 Brexit deadline. This suggests that parliament may now effectively be powerless to stop a no-deal Brexit, although it has been becoming increasingly apparent that there may not be sufficient support in the ranks of pro-EU members to pursue a confidence vote before October 31, with Labour Party leader Corbyn reportedly preferring such a move after Brexit, especially if in the scenario of a no-deal, no transition exit from the EU, which could potentially be a fertile backdrop for opposition parties if there was significant economic disruption.

    [USD, CHF]
    EUR-CHF has managed to find a toehold after dropping for fourth consecutive days through to yesterday, which produced a 25-month low at 1.0863. 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 settled around the 1.3200 mark, down from the six-week high seen last Friday at 1.3266. The backdrop of risk aversion in global markets, and an associated near 5% decline in oil prices from month-ago levels, should limit demand for the Canadian Dollar, although the U.S. currency itself has fallen out of favour as the ratchet higher in the U.S.-China trade war has increased the odds for more aggressive Fed easing. USD-CAD support comes in at 1.3180-83.

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