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By XE Market Analysis February 14, 2020 4:08 am
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    XE Market Analysis: Europe - Feb 14, 2020

    The euro posted fresh lows against the dollar and other currencies, while both the safe haven yen and Swiss franc lost yesterday's bid as the daily increment of new coronavirus cases in China fell back alongside narratives that are downplaying yesterday's jump in total reported cases in Hubei province as being just a reclassification. EUR-USD posted a fresh 34-month low at 1.0827, and is set for its biggest two-week loss since July 2019. EUR-JPY printed a four-month low, at 118.86, and EUR-CHF a near-five-year-low, at 1.0609. EUR-GBP yesterday saw a two-month low. Elsewhere, USD-JPY settled in the upper 109.00s, above the four-day low seen yesterday at 109.61. Cable consolidated gains seen yesterday, holding just shy of the nine-day high at 1-3069. AUD-USD and USD-CAD settled within their respective Thursday ranges.

    [EUR, USD]
    The euro posted fresh lows against the dollar and other currencies. EUR-USD posted a fresh 34-month low at 1.0827, and is set for its biggest two-week loss since July 2019. EUR-JPY printed a four-month low, at 118.86, and EUR-CHF a near-five-year-low, at 1.0609. EUR-GBP yesterday saw a two-month low. With regard to EUR-USD specifically, the dollar has been underpinned by the relative robustness of the U.S. economy, and 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. Although the Fed has backed out of its tightening phase after hiking rates three times last year, the dollar has been finding an underpinned via safe haven demand for Treasuries. The Eurozone economy, meanwhile, has been showing signs of sputtering.

    [USD, JPY]
    The yen's safe haven bid abated as the daily increment of new coronavirus cases in China fell back alongside narratives that are downplaying yesterday's jump in total reported cases in Hubei province as being just a reclassification. The coronavirus outbreak still has a "known unknown" quality, making it, and its eventual impact on the global economy, hard to call. This said, there seems to be a general consensus that the upcoming arrival of warmer weather in the northern hemisphere, combined with the virus containment measures being taken, will see contagion peak around March or April, after which economic activity in China and elsewhere will rebound sharply. Stimulative measures being taken by many central banks are also in the mix of things to be reasonably optimistic about. 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 consolidated gains seen yesterday, holding just shy of the nine-day high at 1-3069. The rallied yesterday, racking up a gain of just over 1% against an underperforming euro, following the unexpected news that Chancellor of the Exchequer (the UK's title for finance minister) Sajid Javid resigned, to be replaced by Rishi Sunak. The change is part of a post-election cabinet reshuffle, widely seen as a power shift in favour of the prime minister, Boris Johnson, that will suit his ambitious plans for a fiscally expansive policy to finance major infrastructure projects. The news comes with available January data out of the UK having so far confirmed a rebound in economic activity as the fog of political uncertainty cleared following the December general election. PM Johnson announced big plans for infrastructure projects earlier in the week, and with the new Chancellor in place, markets are anticipating the government's 2020-21 budget, to be detailed in March, to show a significant fiscal expansion. This has helped quell, for now, persisting concerns about Brexit and divergence from the EU.

    [USD, CHF]
    EUR-CHF has remained heavy since printing a near-five-year-low at 1.0609. 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 found a footing after dropping quite sharply earlier in the week. The pair has settled around the 1.3250 mark, above the 11-day low seen on Wednesday at 1.3236. Oil prices have steadied following a phase of steep declines, which has taken bullish impetus out of the market. On the year-to-date, USD-CAD remains up by just over 2%.

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