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By XE Market Analysis December 6, 2018 3:48 am
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    XE Market Analysis: Europe - Dec 06, 2018

    The Dollar majors have mostly remained in relatively narrow ranges, holding with respective ranges from yesterday. A cross theme has been continued Yen firmness amid an ongoing rout in global stock markets, with S&P futures showing a 0.9% loss, adding to the heavy losses seen on Tuesday (Wall Street was closed yesterday), while Asian bourses have been a sea of red, with the arrest of the Huawei CFO threating to escalate tensions between the U.S. and China. Taiwan's central bank governor also reckoned that U.S.-China trade war could last for another two years. Oil prices are down again following API data showing U.S crude inventories rose by 5.4 mln barrels in the latest reporting week, though prices remain above recent trend lows and OPEC and Russia look set to announced new output quotas. The U.S. T-note yields have fallen below 3%, though Bund yields and other yields are also down, limited the impact on the Dollar relative to other currencies, while the U.S. currency has also found some safe haven demand. EUR-USD has been oscillating in the mid-to-lower 1.1300s, USD-JPY and Yen crosses have remained heavy, although turning higher in early Europe trading.

    [EUR, USD]
    EUR-USD has been oscillating in the mid-to-lower 1.1300s. While the U.S. T-note yield has fallen below 3%, Bund yields and other yields are also down, limiting the impact on the Dollar relative to other currencies, while the U.S. currency has also found some safe haven demand. The Eurosceptic populist movement gripping parts of the Eurozone, meanwhile, to which Italy's budget-planning woes are a symptom, remains a concern for investors, along with softer inflation and signs of flagging growth momentum in the Eurozone economy. The final reading of the Eurozone's November manufacturing PMI, released earlier in the week, came in at 51.8, up from preliminary estimate of 51.5, but still down from 52.0 in October and the lowest reading since August 2016. EUR-USD has been in a bear trend since April, although downside momentum has abated in recent weeks concomitantly with the fading Fed's tightening cycle. Overall, we anticipate EUR-USD will remain on a neutral plane for now in the absence of unexpected developments. EUR-USD has resistance at 1.1359-61, and support at 1.1305.

    [USD, JPY]
    USD-JPY and Yen crosses have remained heavy with the Japanese currency remaining buoyed by safe have demand as the global stock rout took another turn lower in Asia today. News that Canada has arrested Huawei CFO drove underperformance in Hong Kong stocks, with the Hang Seng diving by over 3%, seemed to provided a broader selling cue on Asian bourses with investors still fretting about the potential recessionary signal of the recent inversion at the short-end of the U.S. yield curve. Taiwan's central bank governor also said that US-China war may last one to two years, which chimed with a theme in market narratives that both sides remain on different pages in their trade dispute, despite officials having sounded out positive mood music. Also in the mix is the drop in the U.S. 10-year T-note yield back below 3%. USD-JPY posted an intraday low at 112.58, coming within 1 pip of yesterday's 16-day low, while AUD-JPY carved out a 16-day nadir at 81.27. EUR-JPY has already traded heavy, although like USD-JPY has remained just above recent lows. In Japan, BoJ's Kuroda said median- and long-term inflation expectations are not rising, re-affirming the widespread view that ultra-accommodative monetary policy will remain for a considerable time yet.

    [GBP, USD]
    The Pound sprang back from brief post-PMI data selling yesterday. UK political developments have seen sterling's discount unwind some, inoculating the currency from what would have otherwise been a strong selling cue. The risks of a no-deal crash-out scenario are being priced out after a parliamentary vote on a motion that would change the process in the event that the Prime Minister May's deal is voted down, which could potentially see Parliament take control of the Brexit process from cabinet ministers. This would allow Parliament, where a large majority of members are staunchly against a no-deal Breixt, to work through and push an alternate Brexit plan to the government's and prevent an exit without a new deal in place. This would increase the chance of a soft, Norway-like model being adopted, or remaining in the UK following a new referendum (which polls suggest would happen). The government's Brexit deal is still looking likely to be voted down, with between 60 and 80 Tory MPs reportedly set against it, although there is speculation that some Eurosceptic members might vote for May's deal as it least offers control of immigration and this would avoid a softer version of Brexit or the possibility of remaining in the EU. As for the data, the UK's November services PMI unexpectedly dove to a 28-month low of 50.4, down from 52.2 in the month prior and well off the median forecast for 52.5.

    [USD, CHF]
    EUR-CHF has been re-established back above 1.1300 after come choppy price action in recent sessions. The cross has support at 1.1296-98.

    [USD, CAD]
    USD-CAD is up for a third consecutive day, posting a high at 1.3410, marking the first time above 1.3400 since June 2017. A fresh turn lower in oil prices and dovish-leaning guidance from the BoC yesterday have underpinned the pairing. The BoC noted a "materially weaker" than expected energy sector and signs that trade conflicts are weighing more heavily on global demand. The central bank also said there "may be additional room for non-inflationary growth." A safe haven dynamic has also been buoying the U.S. currency, despite lower Treasury yields amid an ongoing recalibration of Fed policy expectations, where markets are now discounting a pause in the cycle following a hike this month. USD-CAD has support at 1.3340-43.

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