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By XE Market Analysis December 11, 2019 3:27 am
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    XE Market Analysis: Europe - Dec 11, 2019

    The pound has taken a rotation lower following the latest YouGov poll, using its famed MRP methodology (massive survey size and deep analysis to take in account of local factors), and which was the model which correctly called 93% of seats in the 2017 election, showed that a smaller Conservative majority of 28 seats is likely -- down from 68 seats the same survey predicted two weeks ago. The result suggests that the possibility of the Conservatives falling short of a majority is within statistical margins of error. Cable dove by about a big figure in the wake of the survey's release, late yesterday, to a low of 1.3107 before finding a toehold. The pairing saw an eight-month peak at 1.3215 earlier in the day yesterday. EUR-GBP rallied out of 31-month lows. Seasoned political pundits in the UK have been warning about unpredictability in this election due to the relatively large degree of undecided voters, most of which were people who had voted for Labour in the 2017 election. To be sure, a Conservative-with-majority remains the most likely scenario. Survation, a conventional pollster which was closest to the result in 2017, is showing a 14-point Conservative lead, while Politico's poll tracker has the Conservatives at 43% support, unchanged, and Labour with 34% support, up a point from yesterday. Elsewhere in the forex realm, the New Zealand dollar has finally seen a correction of note following a strong one-month rally phase. The prompt was the November SEEK employment report, which showed a 0.8% seasonally-adjusted fall. NZD-USD printed a six-day low at 0.6522. The dollar has been trading neutrally. EUR-USD and USD-JPY have remained in narrow ranges. USD-JPY managed to eke out a five-day high at 108.85 in early Tokyo, but the overall range so far today remains less than 20 pips. Global stock markets have been lacking directional impulse. On the U.S.-China trade front, the White House has let it be known that it is laying the groundwork for a delay in the tariff hikes schedule for December 15, but that a final decision has not been made, according to a source cited by Reuters.

    [EUR, USD]
    EUR-USD has remained directionally challenged, holding narrow ranges below 1.1100. Markets are non-committal, partly due to seasonal considerations and partly amid a certain anxiety ahead of the weekend's deadline for the U.S. to hike tariffs on a further $160 bln worth of Chinese goods. A delay in this deadline is possible, if a phase-1 deal fails to come to fruition, while an implementation of the new tariffs would mark an escalation in the trade war and cause a significant risk-off response in illiquid year-end global markets (which would likely be bearish for EUR-USD). The Fed is widely expected to leave policy on hold at the conclusion of the two-day FOMC meeting today, and is expected to repeat its glass half full view of the economy while signalling an ongoing policy pause, until there is a "material change" in the outlook.

    [USD, JPY]
    The principal directional driver of the yen will likely to remain the ebb and flow of risk appetite in global markets. This will keep developments on the U.S.-Chine trade front will be front and centre. Assuming the phase-1 deal comes (eventually) to fruition, and with the U.S. economy enjoying what looks like a goldilocks economy -- growth slower, but still holding comfortably in positive expansion with inflation remaining benign -- then more upside would likely be seen in USD-JPY, as this would be a backdrop that would maintain Japan's yield-hungry investors confidence in foreign investments.

    [GBP, USD]
    The pound has taken a rotation lower following the latest YouGov poll, using its famed MRP methodology (massive survey size and deep analysis to take in account of local factors), and which was the model which correctly called 93% of seats in the 2017 election, showed that a smaller Conservative majority of 28 seats is likely -- down from 68 seats the same survey predicted two weeks ago. The result suggests that the possibility of the Conservatives falling short of a majority is within statistical margins of error. Cable dove by about a big figure in the wake of the survey's release, late yesterday, to a low of 1.3107 before finding a toehold. The pairing saw an eight-month peak at 1.3215 earlier in the day yesterday. EUR-GBP rallied out of 31-month lows. Seasoned political pundits in the UK have been warning about unpredictability in this election due to the relatively large degree of undecided voters, most of which were people who had voted for Labour in the 2017 election. To be sure, a Conservative-with-majority remains the most likely scenario. Survation, a conventional pollster which was closest to the result in 2017, is showing a 14-point Conservative lead, while Politico's poll tracker has the Conservatives at 43% support, unchanged, and Labour with 34% support, up a point from yesterday.

    [USD, CHF]
    EUR-CHF has steadied after printing a near-one-month low at 1.0912,. The cross to a degree been correlating with the ebb and flow of global stock markets, with the franc retaining a function as a safe haven currency despite the -0.75% deposit rate in Switzerland.

    [USD, CAD]
    USD-CAD has continued to consolidate below 1.3250 after surging by about a big figure last Friday to a 1.3270 peak following the strong U.S. jobs report. A rise in the U.S. yield advantage over Canadian yields has underpinned the pairing, offsetting the near 6% weekly rise in oil prices. Taking a step back, the pairing is continuing to trade near the midway point of a broadly, at times choppy, sideways range that's been seen since July 2018. More of the same looks likely.

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