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By XE Market Analysis February 15, 2019 3:26 am
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    XE Market Analysis: Europe - Feb 15, 2019

    The Dollar has traded mixed, while a side theme of net Yen outperformance has been seen. EUR-USD has been plying a narrow range in the upper 1.1200s. The Pound steadied after tumbling late yesterday after UK Prime Minister was humiliated again, losing a symbolic, but not legally binding, Brexit vote in parliament. USD-JPY posted a four-day low at 110.28. EUR-JPY, AUD-JPY and other Yen crosses saw similar declines, with the Japanese currency finding a degree of safe-haven support as global stock markets tipped lower. Japan's Nikkei closed 1.2% for the worse, while the MSCI Asia-Pacific index (ex-Japan) shed over 1%. S&P 500 futures were down 0.4% in overnight trading, with the cash version of the index having closed on Wall Street yesterday with a 0.3% decline. Yesterday's notable miss in U.S. retail sales has been one bearish force (a post-data survey of economists by Reuters found respondents ascribing a one-in-four chance for the U.S. to enter recession over the coming year). President Trump's decision to call a national emergency to try to obtain funds for his border wall was also pegged as being a negative in market commentaries. Data out of China, showed PPI inflation slowing for a seventh straight month in January to its weakest since September 2016, which highlighted cooling domestic demand in the world's second biggest economy. Also in the mix has been a near 1.5% rally in oil prices, which are at 10-year highs, after Saudi Arabia announced a cut in crude exports. Focus is now on the U.S.-China trade front, with the current round of discussions in Beijing drawing to an end.

    [EUR, USD]
    EUR-USD has drifted lower, back to the mid 1.1200s and returning focus to the three-month that was seen low at 1.1249 yesterday. We retain a bearish view given the evident slowing in the Eurozone economy. While the Fed recently made a hawkish-to-neutral policy shift in terms of forward guidance on Fed funds rates, tightening is stilling happening via the Fed's ongoing post-QE balance sheet shrinking. EUR-USD has resistance at 1.1350, and support at 1.1290-92.

    [USD, JPY]
    USD-JPY posted a four-day low at 110.28. EUR-JPY, AUD-JPY and other Yen crosses saw similar declines, with the Japanese currency finding a degree of safe-haven support as global stock markets tipped lower. Japan's Nikkei closed 1.2% for the worse, while the MSCI Asia-Pacific index (ex-Japan) shed over 1%. S&P 500 futures were down 0.4% in overnight trading, with the cash version of the index having closed on Wall Street yesterday with a 0.3% decline. Yesterday's notable miss in U.S. retail sales has been one bearish force (a post-data survey of economists by Reuters found respondents ascribing a one-in-four chance for the U.S. to enter recession over the coming year). President Trump's decision to call a national emergency to try to obtain funds for his border wall was also pegged as being a negative in market commentaries. Data out of China, showed PPI inflation slowing for a seventh straight month in January to its weakest since September 2016, which highlighted cooling domestic demand in the world's second biggest economy. Also in the mix has been a near 1.5% rally in oil prices, which are at 10-year highs, after Saudi Arabia announced a cut in crude exports. Focus is now on the U.S.-China trade front, with the current round of discussions in Beijing drawing to an end. USD-JPY has resistance at 110.70-72, and support at 109.80-83.

    [GBP, USD]
    Sterling has settled higher after taking a sharp tumble on news of UK Prime Minister May's humiliating defeat in parliament yesterday in a motion that was meant to endorse the government's negotiating strategy. Cable printed a one-month low at 1.2773 before recouping and then settling near the 1.2800 level. The pair remains about 1%down on week-ago levels. The vote in the House of Commons yesterday is not legally demanding, and, as a spokesperson for the prime minister confirmed, the government will continue in its efforts to win concessions on the Irish backstop part of the withdrawal agreement before returning to parliament by no later than February 27. BoE MPC member Vlieghe said yesterday that he sees the tightening path as being softer than a year ago, seeing scope for one 25 bp hike in the repo rate per year in the event of a "smooth" Brexit (which at this stage would seem to mean a Brexit with a deal and multi-year transition period). In the event of a no-deal Brexit scenario, Vlieghe said that he would see rate cuts or an extended pause in policy as more likely than a course of tightening (which has been alluded to by Governor Carney in the event that sterling tumbles). On the Brexit front, market participants continue to wait for a breakout of clarity -- 30 months, no less, after the vote to leave the EU -- but we don't advise anyone to hold their breath as it's not likely to come for a while yet.

    [USD, CHF]
    EUR-CHF is down for a third consecutive day, posting a three-day low at 1.1337, extending a decline from the five-day high that was seen Tuesday at 1.1406. The three-month high seen on February 5, at 1.1443, was left untroubled by the recent advance. The price action has continued a phase of relatively high volatility that the cross 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, 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 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 carved out a three-week high yesterday, at 1.3340. The high was concurrent with a risk-off turn in global equity markets, which rekindled some demand for the U.S. currency while weighing on the higher beta Dollar bloc currencies. Oil prices still managed to rally by about 1.5% after Saudi Arabia announce it would be trimming supply. This pushed WTI crude prices to a 10-day high at $54.92. Higher oil prices, if sustained, should given the Canadian some support. USD-CAD has support at 1.3266-70, and resistance at 1.3350.

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