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By XE Market Analysis January 9, 2020 3:42 am
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    XE Market Analysis: Europe - Jan 09, 2020

    The yen continued to decline concomitantly with a recovery stock markets after President Trump took the off-ramp offered him by Iran. Tehran's missile strikes, having caused no casualties, was termed by the foreign ministry to have "concluded" Tehran's response. Trump duly claimed "victory" while public anger in Iran over Soleimani's assassination has ebbed, and investors and the world breathed a sigh of relief, although concerns remain that Iran-back militia in Iraq might go rogue. Asian equity equity markets continued the recovery that started yesterday. The pan-Asia MSCI index rose 1%, while Japan's Nikkei closed with a 2.3% gain and Australian's ASX index came within in a whisker of the record high that was seen last month. USD-JPY printed a 10-day high at 109.32 as the Japanese currency's safe haven premium unwound further. This extends the rebound from yesterday's low at 107.65, which was seen in the initial wake of Iran's missile strike. Yen crosses also gained, with EUR-JPY and AUD-JPY posting respective two-day and one-week highs. Oil prices have steadied after plunging by almost 10% yesterday, from high to low, while gold prices continued to ebb. EUR-USD found a footing in the lower 1.1100s after the pair dropped by two big figures over the last two days. Cable continued to hold in a narrow range near 1.3100. UK prime minister Johnson met with European Commission chief von de Leyen late yesterday, which produced a lot platitudes about mutual respective, common ground, etc, as the two sides commence talks about a new trading relationship. Before their meeting, Von de Leyen had made clear that a comprehensive agreement would be "impossible" in the 11-month time frame Johnson has set. Elsewhere, AUD-USD steadied after dropping by more than 2.5% over the last week. USD-CAD remained buoyant after rallying concurrently with the dive in oil prices yesterday. The pair pegged a 10-day high at 1.3043.

    [EUR, USD]
    EUR-USD found a footing in the lower 1.1100s after the pair dropped by two big figures over the last two days, which left a two-week low at 1.1101. The 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.

    [USD, JPY]
    The yen continued to decline concomitantly with a recovery stock markets after President Trump took the off-ramp offered him by Iran. Tehran's missile strikes, having caused no casualties, was termed by the foreign ministry to have "concluded" Tehran's response. Trump duly claimed "victory" while public anger in Iran over Soleimani's assassination has ebbed, and investors and the world breathed a sigh of relief, although concerns remain that Iran-back militia in Iraq might go rogue. Asian equity equity markets continued the recovery that started yesterday. The pan-Asia MSCI index rose 1%, while Japan's Nikkei closed with a 2.3% gain and Australian's ASX index came within in a whisker of the record high that was seen last month. USD-JPY printed a 10-day high at 109.32 as the Japanese currency's safe haven premium unwound further. This extends the rebound from yesterday's low at 107.65, which was seen in the initial wake of Iran's missile strike. Yen crosses also gained, with EUR-JPY and AUD-JPY posting respective two-day and one-week highs.

    [GBP, USD]
    Cable continued to hold in a narrow range near 1.3100. UK prime minister Johnson met with European Commission chief von de Leyen late yesterday, which produced a lot platitudes about mutual respective, common ground, etc, as the two sides commence talks about a new trading relationship. Before their meeting, Von de Leyen had made clear that a comprehensive agreement would be "impossible" in the 11-month time frame Johnson has set, which is a view that ourselves, and many others, concur with.

    [USD, CHF]
    EUR-CHF rebounded back above 1.0800 after yesterday posting a 32-month low at 1.0788 following news of Iran's missile strike on two U.S. bases in Iraq. A reversal in risk-off positioning supported the cross with both the U.S. and Iran having stepped back from the cliff edge .The franc continues to play a role as a safe haven, despite the hostile monetary policy of the SNB. Yesterday's low was the culmination of quite a sharp drop from the seven-week peak of December 13, at 1.1033.

    [USD, CAD]
    USD-CAD remained buoyant after rallying concurrently with the near 10% dive in oil prices yesterday. The pair pegged a 10-day high at 1.3043. This puts in some distance from the three-month low seen on December 31 at 1.2951. Aside from oil price dynamics, the Fed's removing a forecast for a 25 bps hike in 2020 at its FOMC policy meeting in December has also been weighing on USD-CAD, with markets presently discounting about 60% odds for the Fed to cut rates by 25 bps or more by the end of 2020. A big focus will be on the dual releases of the December employment reports out of the U.S. and Canada, tomorrow. For the U.S. release, we expect a 180k payroll rise that matches the 180k year-to-date average, with the jobless rate seen holding at 3.5%, alongside gains of 0.1% for hours-worked and 0.3% for hourly earnings. The data face modest downside risk from producer sentiment weakness led by a December ISM drop, a rise in claims through the holidays, and a December vehicle sales drop alongside an assumed pull-back in the vehicle assembly rate to the 11.0 mln area. As for the Canadian employment report, we expect a 50.0k rebound in December after the -71.2k plunge in November. The unemployment rate is seen falling to 5.7% from 5.9%. Overall, we anticipate the data to be bearish for USD-CAD.

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