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By XE Market Analysis February 11, 2019 3:50 am
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    XE Market Analysis: Europe - Feb 11, 2019

    The USD index carved out a new six-week high, at 96.502, during the opening phase of trading in Asia-Pacific before quickly settling to a narrow-ranged consolidation. EUR-USD concurrently saw a 17-day low at 1.1315. Most market commentaries ascribed the Dollar's gains as either being safe-haven related, or a winner of a least-ugly contest, with global markets both weary and wary of U.S.-China trade tensions. USD-JPY edged out a two-session high at 110.01, with the Yen trading modestly softer versus most other currencies. Markets were thinned by the absence of Tokyo markets, closed today for a public holiday in Japan. Chinese markets reopened after the week-long Lunar New Year hiatus, and the Shanghai’s SSE Composite, catch-up mode, rallied 1.4%. Other stock markets in Asia have seen directionally indecisive. The MSCI’s Asia-Pacific (ex-Japan) index posted only slightly gains, and remained below the four-month high the index saw on Friday. A one-week round of trade talks between the U.S. and China have began in Beijing today, which will culminate in high-level talks on Thursday and Friday. The talks will address the thorny intellectual property issue, and come with the U.S. pledging to hike tariffs on $200 billion of Chinese imports to 25% from 10%, which in the event would become effective on March 2.

    [EUR, USD]
    EUR-USD saw a 17-day low at 1.1315. Most market commentaries ascribed the Dollar's gains as either being safe-haven related, or a winner of a least-ugly contest, with global markets both weary and wary of U.S.-China trade tensions. We continue to take a bearish view of EUR-USD. Recent data out of the Europe have fed the Eurozone-slowing story. The European Commission last week slashed GDP growth projections for the Eurozone economy, to 1.3% for 2019, down from 1.9% previously projected. Brexit uncertainty is also in the mix, which January PMI reports evidenced as having a material impact on economic activity on the British side of the channel, which will have some drag on the continent's side. Juxtaposing this has been relatively upbeat incoming U.S. data, although there is a caveat as the data picture is incomplete and distorted as a consequence of the recent partial government shutdown. Another caveat is the U.S.-China trade relations. U.S. President Trump said last week that he did not plan to meet with Xi before the March 1 deadline set by the U.S. and China to achieve a trade deal. This ups the ante, with the U.S. having pledged to significantly hike tariffs on Chinese imports on March 2. Markets are restive as the two sides seem to remain a long way apart on the issue of intellectual property, the issue that this week's talks in Beijing will be attempting to bridge. EUR-USD resistance comes in at 1.1380-82, and support at 1.1300-05.

    [USD, JPY]
    USD-JPY edged out a two-session high at 110.01, with the Yen trading modestly softer versus most other currencies. Markets were thinned by the absence of Tokyo markets, closed today for a public holiday in Japan. Chinese markets reopened after the week-long Lunar New Year hiatus, and the Shanghai’s SSE Composite, catch-up mode, rallied 1.4%. Other stock markets in Asia have seen directionally indecisive. The MSCI’s Asia-Pacific (ex-Japan) index posted only slightly gains, and remained below the four-month high the index saw on Friday. A one-week round of trade talks between the U.S. and China have began in Beijing today, which will culminate in high-level talks on Thursday and Friday. The talks will address the thorny intellectual property issue, and come with the U.S. pledging to hike tariffs on $200 billion of Chinese imports to 25% from 10%, which in the event would become effective on March 2. USD-JPY has support at 109.07-10.

    [GBP, USD]
    Sterling has started the new week on a softer footing, losing ground to the generally firmer Dollar, and the Euro. Cable has tumbled to the lower 1.2900s, unwinding a good portion of the 1% surge seen late last week after BoE Governor Carney had effectively walked back the dovish undertones of the central bank's guidance, stating that while Brexit-related uncertainty has risen, the overall outlook was still good, especially if a no-deal scenario is avoided. He also stressed that the BoE sees a no-deal Brexit as a low-risk probability (although still preparing for this contingency as a matter of prudence), a view that we concur with, although it still remains perfectly unclear how the Brexit mess will be resolved. The pound is still trading at about a 13%-14% discount in trade-weighted terms relative to levels prevailing ahead of the vote to leave the EU in June 2016. Cable has resistance at 1.2996-1.3000, and support at 1.2900.

    [USD, CHF]
    EUR-CHF has remained heavy after printing a two-week low at 1.1310. Broad declines in the Euro have been weighing with incoming data continue to painting a picture of a stagnating Eurozone economy. The cross had earlier last week spiked to a three-month high at 1.1443. The price action continues a phase of relatively high volatility EUR-CHF has been experiencing. Since early January there have been several bouts of pronounced underperformance in the Swiss franc, often accompanied by talk/suspicions of SNB intervention. SNB vice president, Zurbruegg, also said last month that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate." SNB Chairman Jordan said recently that "current monetary policy is the right one and we will continue to with it for some time." He said that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario.

    [USD, CAD]
    USD-CAD has settled in the upper 1.3200s after tumbling to a 1.3232 low in the wake of Canada's January employment report on Friday. This interrupted a run of five consecutive higher highs in USD-CAD, seen as oil prices tumbled by over 5% from week-ago levels. The Canadian Dollar still remains up by over 2.5% against the U.S. buck on the year-to-date. This has been concomitant with the 15%-plus gain seen in oil prices over the same period. Sustained gains in crude prices are a boon to Canada's terms of trade, and vice versa. USD-CAD has support at 1.3230, and resistance at 1.3374-76.

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