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By XE Market Analysis February 22, 2019 3:35 am
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    XE Market Analysis: Europe - Feb 22, 2019

    The Dollar majors have been holding steady so far today. EUR-USD has been making time in the mid 1.1300s, holding within yesterday's 1.1320-1.1366 range. USD-JPY has continued to ply a narrow range in the upper 110.0s, holding below the one-week high seen earlier in the week at 110.94. President Trump said he would be meeting with China's top trade negotiator later today, which helped Chinese stock markets rally, though most bourses across Asia have put in muted performances. S&P 500 futures are flat after the cash version of the index closed out on Wall Street yesterday with a 0.4% loss. Much is riding on the outcome of the U.S.-China trade talks, which has been limiting the commitment in most global markets over the last day or so, having largely priced-in a positive outcome. The Australian Dollar steadied after tumbling over 1% yesterday. Prime Minister Morrison said yesterday's news that China was banning coal imports at its Dalian port was not tantamount to a souring in relations between the countries, a viewpoint backed by RBA Governor Lowe, who also added that a rate hike may be appropriate in 2020. AUD-USD recouped to the lower 0.7100s, leaving yesterday's 10-day low at 0.7070. The pair remains 0.4% lower from week ago levels.

    [EUR, USD]
    EUR-USD has been making time in the mid 1.1300s, holding within yesterday's 1.1320-1.1366 range. President Trump said he would be meeting with China's top trade negotiator later today, which helped Chinese stock markets rally, though most bourses across Asia have put in muted performances. S&P 500 futures are flat after the cash version of the index closed out on Wall Street yesterday with a 0.4% loss. Much is riding on the outcome of the U.S.-China trade talks, which has been limiting the commitment in most global markets over the last day or so, having largely priced-in a positive outcome. Overall, we retain a bearish view of EUR-USD. Concerns about U.S. tariffs on cars imported from the Eurozone along with signs of flagging Eurozone growth momentum, and the associated rekindling in ECB dovishness, should keep the common currency on an overall weakening tack versus the Dollar, given the relative resilience of the U.S. economy. EUR-USD has trend resistance at 1.1383-85.

    [USD, JPY]
    USD-JPY has continued to ply a narrow range in the upper 110.0s, holding below the one-week high seen earlier in the week at 110.94. President Trump said he would be meeting with China's top trade negotiator later today, which helped Chinese stock markets rally, though most bourses across Asia have put in muted performances. S&P 500 futures are flat after the cash version of the index closed out on Wall Street yesterday with a 0.4% loss. Much is riding on the outcome of the U.S.-China trade talks, which has been limiting the commitment in most global markets over the last day or so, having largely priced-in a positive outcome. A source cited by Reuters yesterday said the two sides have started to outline commitments in principle in what is described as the most significant progress yet. Insofar as a positive outcome to the negotiation would likely spark a risk-on phase in global markets, this would be bullish for USD-JPY.

    [GBP, USD]
    Sterling has been trading neutrally over the last day, after weakening moderately yesterday. The UK currency remains up by 1.2% on the dollar from week-ago levels, and by 0.8% and 1.5% against the euro and yen, respectively, over the same period. The gains reflect a partial unwinding in the pound's Brexit discount, although the situation remains thickly clouded in uncertainty. Through the mists, however, there is a cautious belief that a no-deal Brexit -- despite being deliberately hung out as a political persuasion tool -- will be avoided. Countless businesses on both sides of the channel, and in North America and Asia, have warned about the consequences of a no deal, and Fitch Ratings said the UK risked a prolonged recession and losing its AA rating in this scenario. A report published last week by an Irish Senator and UNESCO also concluded that there would be a return to violence in Northern Ireland in the event a hard border was re-imposed following a no-deal Brexit. Few politicians are wanting to be associated with a no deal. A UK cabinet source cited by the Guardian yesterday said that ministers have noticeably turned against using the no-deal threat as a negotiating tactic. We see the pound, still markedly undervalued, as having potential to rotate to a trading band at least 5% higher at such time that a no-deal Brexit could be concretely ruled out.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.1300s after correcting from a six-day high that was seen last Tuesday at 1.1406. 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 has found a footing, setting in the lower 1.3200s after posting a two-week low at 1.3150 on Wednesday. The pair has been in an overall downward trend since making a three-week high last week at 1.3340. December retail sales are due from Canada today, expected to dip 0.1% after the 0.9% decline in November. As-expected data would track our projection for a 0.1% decline in December GDP after a 0.1% loss in November, consistent with the BoC's view that the oil price plunge will temporarily slow GDP in Q4 and Q1. USD-CAD has support at 1.3148-50.

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