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By XE Market Analysis August 21, 2019 3:34 am
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    XE Market Analysis: Europe - Aug 21, 2019

    The main currencies have been steady so far today amid a backdrop of sputtering stock markets as market participants wait on upcoming central bank signals from today's publication of the FOMC minutes from the recent Fed meeting and from the upcoming gathering of central bank policymakers at the Jackson Hole Symposium. Investors are also monitoring trade negotiation, most likely with a degree of trepidation for the lack of concrete signs of progress, whether on the U.S. versus China, U.S. versus Japan or U.S. versus EU fronts. USD-JPY has continued to orbit the 106.50 level, recouping from the lower 106.00s in the latest phase. EUR-USD, after yesterday edging out a three-day low at 1.1065, has returned to familiar levels around the 1.1100 mark, which is near net-unchanged on the week. AUD-USD continued to flatline in the upper 0.6700s, while Cable and USD-CAD are showing little directional impulse. More of the same looks likely for now.

    [EUR, USD]
    EUR-USD, after yesterday edging out a three-day low at 1.1065, has returned to familiar levels around the 1.1100 mark, which is near net-unchanged on the week. We have been advocating a bearish view of the pairing given the ECB's course to easing in September and the risk of a no-deal Brexit, which in the event would be detrimental to the Eurozone economy. The revival in global stock markets, which has come with a partial de-escalation in the U.S.-China trade war, alongside expectations for stimulus in major global economies, has also taken the pressure off the Fed to ease aggressively (notwithstanding President Trump's call for 100 bp of rate cuts). The political situation in Italy, meanwhile, has returned to being a thorn in the side of the Eurozone, with the coalition government there in crisis.

    [USD, JPY]
    USD-JPY has continued to orbit the 106.50 level, recouping from the lower 106.00s in the latest phase. The pair has settled after dropping sharply during the first two weeks of August, driven by safe-haven demand for the Japanese currency. Expectations for stimulus in major economies has helped assuage fears of recession, at lest for now,which has helped lift out of the seven-month high seen last week at 105.05.

    [GBP, USD]
    The Pound looks to have found an equilibrium of sorts over the last week following a protracted, multi-month period of underperformance. Market participants are now bracing for what promises to be a phase of high drama on the Brexit front, which will commence when parliament returns from summer recess on September 3, when the anti-no-deal and pro-no-deal Brexit parliamentary factions will do battle.

    [USD, CHF]
    EUR-CHF has settled around the 1.0850 mark after printing a fresh 25-month low at 1.0835 last Thursday amid volatility in equity markets and recession-portending inversions of the U.S. and UK yield curves, which fed safe haven demand for the Swiss currency (despite the punishing -0.75% deposit rate). While risk conditions have improved since last week, we retain a bearish view of the cross given ECB's course to additional monetary stimulus in September, and the risk of a disorderly no-deal Brexit on October 31.

    [USD, CAD]
    USD-CAD yesterday matched the two-month high that was seen on August 7 at 1.3345. The calming in global markets after last week's bout of high volatility has taken the perceived pressure off the Fed for aggressive easing, which in turn has given the U.S. Dollar some buoyancy. USD-CAD support comes in at 1.3270-73.

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