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By XE Market Analysis August 30, 2019 4:48 am
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    XE Market Analysis: Europe - Aug 30, 2019

    The Dollar has continued to trade on a mixed-to-firm footing, edging out a four-day high versus the Australian Dollar and matching yesterday's four-week highs it saw against the Euro, while holding steady so far today against the Pound and the Canadian buck, and giving back some of the gains seen yesterday in the case against the Yen. This comes with stock markets have remained buoyed in Asia following yesterday's breakout of conciliatory language on the U.S.-China trade front, with China's commerce ministry affirming that discussions are underway with U.S. counterparts in preparation for face-to-face trade negotiations in September. The MSCI Asia-Pacific index rallied by 1% to the best level in a week. S&P 500 futures are flat, however, after Wall Street closed higher yesterday. There remain good reasons for investors to be wary with regard to the U.S.-China trade situation. One aspect is that the Trump administration seems more focused on containing China for strategic and security related reasons, and is not at the table to merely to improve trading terms. Beijing has also insisted that Washington to cancel the latest tariff increase, which looks to have fallen on deaf ears (the next round of tariff hikes comes into effect on Sunday). And while the 10-year yield has rebounded sharply in recent sessions, the 2-year over 10-year curve has remained inverted -- a potent prognosticator of recession. The risk of a messy, economically damaging no-deal Brexit in two months time is also in the mix, and was on the list of factors blamed for yesterday's record low in Hungarian forint.

    [EUR, USD]
    EUR-USD has declined for what is now a sixth consecutive day, earlier printing a one-month low at 1.1033. Recent losses have mostly been driven by a broader firming in the U.S. currency. The rekindling of risk appetite in global markets this week has taken the pressure off the Fed, which helped the currency, although the Dollar had also been benefiting from strong international demand for Treasuries during last week's heightening in risk-off conditions. On the Euro's side of the scales, the ECB remains on course to increase monetary stimulus settings in September, while the risk of a no-deal Brexit, which has been amplified by the UK prime minister's move to suspend parliament yesterday, and which in the event would be detrimental to the Eurozone economy, is high on the "reasons to be concerned" side of the positional decision-making list of market participants. The no-deal Brexit risk was on the list of factors blamed for yesterday's record low in Hungarian forint. We retain a bearish view of EUR-USD. Resistance comes in at 1.1098-1.1100.

    [USD, JPY]
    The Yen has rebounded a little after declining quite sharply yesterday, losses which were concomitant with a pickup in risk appetite in global markets. Japanese data today showed the jobless rate ebbing to its lowest level in 27 years in July, but this was offset by a somewhat paradoxical biggest drop-off in retail sales in over three years. The data had little bearing on forex markets, with the Japanese currency, being the currency safe haven of choice, almost exclusively in the prevailing era of Trumpian trade warring taking its directional cues from the ebb and flow of risk appetite. USD-JPY has settled below the one-week high seen yesterday at 106.68. A series of former daily highs between this level and 106.78 mark out a horizontal resistance zone. The pair is up by some 2% from the 34-month low that was seen last week at 104.45.

    [GBP, USD]
    Sterling is moderately down from week-ago levels versus the dollar and euro, which is a consequence of the news that UK Prime Minister' Boris Johnson moved to suspend Parliament. This has generated a veritable political storm given the length and timing of it, though the government is operating within the rules (such "proroguing" happens each year to allow the government to set out its policy agenda, though this will be the longest in duration -- from September 11 to October 14 -- since 1945). Opposition parties now look likely to attempt to bring down the government by a confidence vote as soon as next week, having hitherto seen this as a last resort option. Cable has settled back under 1.2200.

    [USD, CHF]
    EUR-CHF has nudged higher amid a backdrop of abating risk aversion, which has seen some of the Swiss Franc's safe haven premium unwind. The cross has printed a one-week high at 1.0933, putting in some added distance from the 25-month low seen on August 15 at 1.0835. A three-week range high is at 1.0928, which may be a focus for chart-minded market participants. While sentiment in global markets has improved this week, there still remains a skittish undertone as prospects for a thawing in U.S.-China relations seem limited. The Trump administration's agenda appears to be one of containment rather than the mere seeking of improved trading terms, which the insistence of Beijing for the U.S. not to implement new tariffs looks to have fallen on deaf ears. The the risk of a disorderly no-deal Brexit on October 31 is also a negative for the Euro. Overall, we retain a bearish view of EUR-CHF.

    [USD, CAD]
    USD-CAD has settled modestly lower after printing a six-day high at 1.3319, which was the culmination of 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 warring era and its impact on the global economy will continue to have directional influence 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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