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By XE Market Analysis August 26, 2019 3:41 am
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    XE Market Analysis: Europe - Aug 26, 2019

    High volatility has been the order in forex markets. News that President Trump said that China called U.S. negotiators and that "we're going to start talking very seriously with China" and that "I think we will make a deal" helped spark a rotation low in the yen after the safe-haven currency choice had earlier rallied to a 33-month high versus the dollar. USD-JPY hit a low at 104.45 before rebounding back above 105.50

    [EUR, USD]
    EUR-USD has settled to a narrow range trading around 1.1150 after rallying from the 1.1050 area on Friday on news that China announced 5-10% tariffs on an additional $75 bln of U.S. goods, and a fairly dovish, although non-committal speech, from Fed chair Powell. Offsetting this are 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 political situation in Italy is also on the worry list.

    [USD, JPY]
    High volatility has been the order in forex markets. News that President Trump said that China called U.S. negotiators and that "we're going to start talking very seriously with China" and that "I think we will make a deal" helped spark a rotation low in the yen after the safe-haven currency choice had earlier rallied to a 33-month high versus the dollar. USD-JPY hit a low at 104.45 before rebounding back above 105.50

    [GBP, USD]
    Sterling last week posted a second consecutive up week against the dollar, the first time this has been seen since February. A downsizing in what has built up to be an extreme net short exposure to the pound after months of Brexit-related underperformance has been afoot over the last couple of weeks, which comes ahead of the UK parliament's return from summer recess on September 3. The most recent Reuters poll on Brexit, which was published earlier in the month, found that while the odds for a disorderly no-deal, no-transition period Brexit had risen to a median probability of 35%, the most probable outcome was still for a deal being struck. It is in this context that last week's upbeat remarks from Germany's Merkel triggered a buying reaction, although her comments were little more than platitudes; a stage-managed show of reasonableness. What's clear is that there isn't any sign that "alternative arrangements" proposals to the Irish border backstop guarantee would be satisfactory to Ireland and the EU as a means of ensuring that the Good Friday Peace Agreement isn't broken. The possibility for a general election hangs in the air, which would, even if it is held after October 31, boil down to a straight contest between an alliance of pro-EU parties and pro-Brexit parties. That may be the point at which Brexit is once and for all decided on.

    [USD, CHF]
    EUR-CHF has turned back under 1.0900 as risk-off conditions returned to global markets. 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 has firmed up today though remains below the three-day high the pair saw on Friday at 1.3339, which was just below the two-month high at 1.3345. The rekindling in risk aversion in global markets should, while it persists, underpin USD-CAD. The pair has support at 1.3270-73.

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