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By XE Market Analysis December 24, 2018 4:13 am
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    XE Market Analysis: Europe - Dec 24, 2018

    Narrow ranges have prevailed in low-volume markets. The Dollar consolidated at moderately softer levels after rallying on Friday, with all the main pairings holding comfortably within their respective Friday ranges. EUR-USD has settled in the upper 1.1300s, up from the four-session low seen on Friday at 1.1356, and USD-JPY has settled near the 111.0 mark. AUD-USD, USD-CAD and Cable have similarly seen been in directionless holding patterns, which will likely prevail through to the new year, unless there is an unexpected significant news development. Political instability in the U.S. has become a worry for markets, coming at a time of turbulence in global finance markets. The U.S. Treasury secretary Mnuchin has been trying to assuage markets, and is convening a "Plunge Protection Team", while Trump has reportedly been mooting the idea of firing Fed Chairman Powell. The London interbank market will close at noon today, and will be operating at skeleton staffing levels until the new year now.

    [EUR, USD]
    EUR-USD has settled in the upper 1.1300s, up from the four-session low seen on Friday at 1.1356 while remaining comfortably below the six-week high seen earlier last week at 1.1485. Political uncertainty in the U.S. has become a worry for investors, while the Fed's refrain last week from indicating a pause in the rate hike cycle, as many market participants had expected, saw the Dollar recoup lost ground. The Euro has also been experiencing conflicting forces, with signs of flagging economic growth momentum on the one hand, and a rally in Italian assets on the back of a credible, Brussels-appeasing budget proposal, on the other. In the bigger view, we see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a lower Fed tightening trajectory. Support comes in at 1.1356-58, and resistance at 1.1439-40.

    [USD, JPY]
    USD-JPY has settled near the 111.0 mark, above the three-month low seen last week at 110.81. We take a bearish view of the pairing on the view that global stock markets will entered a bear phase, correcting after a near decade winning streak as the era of ultra-accommodative monetary policy unravels. The U.S. versus China standoff also looks to sustain, especially with other nations charging Beijing with corporate espionage.

    [GBP, USD]
    Sterling has found a footing over the last week after declining for three consecutive weeks on Brexit-related angst, which left a 20-month low versus the dollar at 1.2476 on December 12. Cable has settled to a range around 1.2600-1.2700. The London interbank market, which will now be operating at skeletal staffing levels through to the new year, will be closing at noon today, before reopening on Thursday. In the new year, the UK Prime Minister will likely continue to plug away in her diplomatic effort to sweeten the Brexit deal, although it's clear that there won't be any renegotiation by the EU. This suggests that the Withdrawal Agreement from the EU is headed for eventual failure in the UK Parliament. The parliamentary vote on the Brexit deal and outline for a future relationship will take place in the week of January 14, before the legislated deadline of January 21. Our best guess remains that Parliament will vote down the deal and, of all the possible scenarios at that point, that a new EU referendum will be the path of least resistance. We anticipate that the Pound with remain a sell-into-gains trade into the vote, but also see potential for the currency to rally between 5% and 10% as we expect disorderly no-deal Brexit scenario to be avoided.

    [USD, CHF]
    EUR-CHF has settled in the lower 1.1300s. The cross remains comfortably above the two-and-a-half month low seen earlier in the month at 1.1225. The SNB remained firmly on hold at its quarterly policy meeting this month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD has settled in the upper 1.3500s after printing a 19-month high last week at 1.3604. While the Fed has shifted to a lower tightening trajectory, oil prices and other industrial commodity prices tumbled to fresh trend lows on global growth concerns. This backstop, which looks likely to sustain well into 2019, should keep USD-CAD biased towards the upside. Support comes in at 1.3520. The 2017 high at 1.3793 provides and upside waypoint.

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