Home > XE Currency Blog > XE Market Analysis: Europe - Aug 22, 2019

AD

XE Currency Blog

Topics6681 Posts6726
By XE Market Analysis August 22, 2019 4:05 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4606
    XE Market Analysis: Europe - Aug 22, 2019

    The Yen has been on the rise amid a backdrop of convulsing stock markets. Yesterday's FOMC minutes rekindled a risk-off vibe for the simple lack of a signal that the Fed's July rate cut was the start of an easing cycle. Fed Chair Powell will have opportunity to refine the central bank's guidance at his speech tomorrow at the Jackson Hole Symposium. USD-JPY printed a two-day low, at 106.29, as did EUR-JPY, at 117.73. The biggest mover, not surprisingly, has been AUD-JPY, a forex market barometer of shifting risk-appetite patterns in global markets. The cross was showing a 0.5% loss heading into the London interbank open, and was testing one-week lows at 71.90. Elsewhere, both the euro and sterling saw modest declines versus the dollar and yen. EUR-USD saw a two-day low at 1.1075, nearing the three-week low that was seen on Tuesday at 1.1065. Cable also posted a two-day nadir, at 1.2116. On the Brexit front, Germany's Merkel offered UK Prime Minister Johnson a 30-day window to come up with alternative proposals to the Irish border backstop, though this is no more than a platitude as the EU don't see there is an alternative to the backstop without breaching the Good Friday Peace Agreement. We can expect similar platitudes from today's meeting between Johnson and France's Macron. UK opposition leader, Corbyn, meanwhile, has invited leaders of all opposition parties to discuss tactics to stop a no-deal Brexit.

    [EUR, USD]
    EUR-USD has continued to oscillate 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]
    The Yen has been on the rise amid a backdrop of convulsing stock markets. Yesterday's FOMC minutes rekindled a risk-off vibe for the simple lack of a signal that the Fed's July rate cut was the start of an easing cycle. Fed Chair Powell will have opportunity to refine the central bank's guidance at his speech tomorrow at the Jackson Hole Symposium. USD-JPY printed a two-day low, at 106.29, as did EUR-JPY, at 117.73. The biggest mover, not surprisingly, has been AUD-JPY, a forex market barometer of shifting risk-appetite patterns in global markets. The cross was showing a 0.5% loss heading into the London interbank open, and was testing one-week lows at 71.90.

    [GBP, USD]
    Cable printed a two-day nadir at 1.2116, but remains on a broadly steady track, partly reflecting that the pound has found an equilibrium of sorts after a multi-month period of underperformance. On the Brexit front, Germany's Merkel offered UK Prime Minister Johnson a 30-day window to come up with alternative proposals to the Irish border backstop, though this is no more than a platitude as the EU don't see there is an alternative to the backstop without breaching the Good Friday Peace Agreement. We can expect similar platitudes from today's meeting between Johnson and France's Macron. UK opposition leader, Corbyn, meanwhile, has invited leaders of all opposition parties to discuss tactics to stop a no-deal Brexit.

    [USD, CHF]
    EUR-CHF has settled around the 1.0850-1.0950 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 turned lower over the last day, after on Tuesday matching the two-month high that was seen on August 7, at 1.3345. A correction low was printed at 1.3254 before the pair recouped back toward the 1.3300 mark. The lack of a signal in the FOMC minutes that the July rate cut was the start of an easing cycle, rather than a mid-cycle move, has returned buoyancy to the U.S. currency. USD-CAD support comes in at 1.3270-73.

    Paste link in email or IM