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By XE Market Analysis August 29, 2019 3:46 am
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    XE Market Analysis: Europe - Aug 29, 2019

    The Yen has risen versus most other currencies today as markets take to defensive positioning amid a backdrop of sputtering stock markets. The forex markets' barometer of risk appetite, AUD-JPY, has been a relatively big mover, and was showing a near 0.5% decline heading into the London interbank open. The less liquid NZD-JPY cross was down by 0.7%. Both crosses still remain above their major trend lows seen in early trading on Monday. USD-JPY, meanwhile, has been relatively steady, drifting back under 105.90. The Dollar itself has been holding generally firm, despite record lows in the U.S. 30-year bond yield. Demand for U.S. Treasuries, being the biggest and most liquid of risk-free asset market, with a paying coupon to boot (unlike gold, or Bunds or JGBs), can underpin the Dollar during periods of risk aversion in global markets. The narrow trade-weighted USD index (DXY) is near net unchanged on the day so far, at 98.19 bid, after yesterday clawing out a four-session high at 98.26. EUR-USD has settled a little above the four-session low seen yesterday at 1.1073. The Trump administration yesterday made official its extra 5% tariff on $300 bln in Chinese goods imports, affirming the collection dates of September 1 and December 15. U.S. Treasury Secretary Mnuchin he is expecting Chinese negotiators to visit Washington, but wouldn't confirm whether a previously planned meeting in September would take place. Elsewhere, Sterling has settled after plunging yesterday on news of the UK prime minister's move to suspend Parliament. This has generated a political storm given the timing of it, though the government is operating within the rules. Opposition parties now look certain to attempt to bring down the government by a confidence vote as soon as next week.

    [EUR, USD]
    EUR-USD has settled a little above the four-session low seen yesterday at 1.1073. The Dollar has been holding up well despite record lows in long-end U.S. Treasury yields, with the demand for the safe haven of Treasuries itself buoying the currency. Eurozone data this week, meanwhile, which has included a sub-forecast reading in the German July Ifo index and a 0.1% q/q contraction in German Q2 GDP, have upped the ECB stimulus ante heading into the central bank's September policy meeting. The risk of a no-deal Brexit, the risk for which has been amplified by the UK prime minister's move to suspend parliament yesterday, which in the event would be detrimental to the Eurozone economy, is also on the worry list with regard to the common currency. We retain a bearish view of EUR-USD.

    [USD, JPY]
    The Yen has risen versus most other currencies today as markets take to defensive positioning amid a backdrop of sputtering stock markets. The forex markets' barometer of risk appetite, AUD-JPY, has been a relatively big mover, and was showing a near 0.5% decline heading into the London interbank open. The less liquid NZD-JPY cross was down by 0.7%. Both crosses still remain above their major trend lows seen in early trading on Monday. USD-JPY, meanwhile, has been relatively steady, drifting back under 105.90. The Trump administration yesterday made official its extra 5% tariff on $300 bln in Chinese goods imports, affirming the collection dates of September 1 and December 15. U.S. Treasury Secretary Mnuchin he is expecting Chinese negotiators to visit Washington, but wouldn't confirm whether a previously planned meeting in September would take place.

    [GBP, USD]
    Sterling has settled after plunging yesterday on news of the UK prime minister's move to suspend Parliament. This has generated a political storm given the timing of it, though the government is operating within the rules. Opposition parties now look certain to attempt to bring down the government by a confidence vote as soon as next week. Cable has settled near 1.2200 after yesterday printing a six-day low at 1.2155.

    [USD, CHF]
    EUR-CHF has been in sideways and sometimes choppy range for two weeks now, holding above the 25-month low seen on August 15 at 1.0835. The low was a product of increased expectations for ECB monetary stimulus, and partly an increased safe haven premium being placed on the Swiss currency (despite the punishing -0.75% deposit rate). We expect the cross to remain heavy. While sentiment in global markets has improved this week, there remains a skittish undertone as prospects for a thawing in U.S.-China relations seem limited (the Trump administration's agenda appearing to be one of containment rather than the mere seeking of improved trading terms). The the risk of a disorderly no-deal Brexit on October 31 is also a negative for the Euro.

    [USD, CAD]
    USD-CAD printed a six-day high at 1.3319 during the Asian session today, which extended a rebound from the two-week low seen on Tuesday at 1.3225. The pairing has been lacking clear direction over the last three weeks, which follows an ascending phase out of the 10-month low seen in mid July at 1.3109. The evolution of the Trumpian trade war and its impact on the global economy will continue to have directional impact on USD-CAD given the Canadian Dollar's standing as a commodity currency. USD-CAD has support at 1.3270-73.

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