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By XE Market Analysis February 12, 2020 4:04 am
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    XE Market Analysis: Europe - Feb 12, 2020

    The yen remained soft while the dollar bloc currencies extended recent gains as risk appetite in global markets held up, with a reported dip in new coronavirus cases in China being tonic for investors. Wall Street yesterday saw fresh record highs, while the MSCI Asia-Pacific equity index rose by another 1% today. U.S. and European index futures are also pointed higher. USD-JPY lifted moderately, to 109.91 level, though remained shy of Tuesday's high at 109.96. AUD-JPY, now in its third consecutive day of ascent, carved out a five-day high at 74.01. AUD-USD and NZD-USD lifted to respective a six-day highs, at 0.6737 and 0.6476, while USD-CAD fell to a six-day low at 1.3272. The RBNZ left policy on hold following a board meeting today, and also removed guidance for more rate cuts, saying that only a longer than currently anticipated impact from the coronavirus outbreak would warrant any further easing. Elsewhere, EUR-USD looks to have found a footing after a run of seven consecutive down days, steadying so far today around 1.0900-1.0925, above the four-month low that was printed at 1.0891. Cable edged out a six-day high at 1.2969, surpassing yesterday's high by a pip, while EUR-GBP ebbed to a nine-day low at 0.8413. The pound is amid a phase of modest outperformance, with available January data out of the UK have shown a rebound in economic activity as the fog of political uncertainty cleared following the December general election, while Prime Minister Johnson announcing big plans for infrastructure projects. These have helped quell, for now, concerns about Brexit and divergence from the EU.

    [EUR, USD]
    EUR-USD looks to have found a footing after a run of seven consecutive down days, steadying so far today around 1.0900-1.0925, above the four-month low that was printed at 1.0891. The narrow trade-weighted USD index has concurrently come off the boil after making a four-month peak yesterday. The dollar, underpinned by the relative robustness of the U.S. economy, continues to register as the strongest main currency on the year-to-date, with gains of around 4% versus the weakest, the Australian and New Zealand dollars. EUR-USD pair has been trending lower since early 2018, dropping from levels near 1.2500 and posting a 32-month low at 1.0879 in early October, the current nadir of the trend. Momentum has faded, however, with the Fed having backed out of its tightening phase after hiking rates three times last year. The central bank has since been engaged in capping the repo rate. Fed funds futures are discounting about 82% odds for a 25 bp or greater easing at the last FOMC meeting of the year in December, which is up from the 73% probability being priced in ahead of the U.S. jobs report on Friday.

    [USD, JPY]
    The yen remained soft while the dollar bloc currencies extended recent gains as risk appetite in global markets held up, with a reported dip in new coronavirus cases in China being tonic for investors. It may be too early to say that the virus is past the point of "peak contagion" (the chief of the World Health Organization said yesterday that it is a greater threat than terrorism), though the news fits prevailing views that the virus will likely peak in March-April, as warmer weather appears in the northern hemisphere. Wall Street yesterday saw fresh record highs, while the MSCI Asia-Pacific equity index rose by another 1% today. U.S. and European index futures are also pointed higher. USD-JPY lifted moderately, to 109.91 level, though remained shy of Tuesday's high at 109.96. AUD-JPY, now in its third consecutive day of ascent, carved out a five-day high at 74.01. Assuming the virus doesn't worsen (as measured by the rate of contagion and rate of deaths), we are bullish of USD-JPY.

    [GBP, USD]
    Cable edged out a six-day high at 1.2969, surpassing yesterday's high by a pip, while EUR-GBP ebbed to a nine-day low at 0.8413. The pound is amid a phase of modest outperformance, with available January data out of the UK have shown a rebound in economic activity as the fog of political uncertainty cleared following the December general election, while Prime Minister Johnson announcing big plans for infrastructure projects. These have helped quell, for now, concerns about Brexit and divergence from the EU.

    [USD, CHF]
    EUR-CHF printed a fresh 34-month low at 1.0642, completing a run of five consecutive down days. The pronounced losses the cross has been seeing are partly a product of safe-haven demand for the franc, and partly as a lasting consequence of the surprising decision by the U.S. to add Switzerland to its list of currency manipulators last month. The U.S. move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD fell to a six-day low at 1.3265, extending a correction from the four-month peak that was seen on Monday at 1.3329. The move reflects a pick-up in risk appetite in global markets and concerns about the impact of the coronavirus outbreak recede. This has boosted the dollar bloc currencies, and oil prices, which is a particular boon for the Canadian currency. Front-month WTI crude prices have rallied by nearly 2%, as of the early London session.

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