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By XE Market Analysis January 15, 2019 4:14 am
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    XE Market Analysis: Europe - Jan 15, 2019

    The Yen weakened and Dollar bloc currencies rallied amid a risk-back-on sentiment in markets, with Asian stock markets and U.S. equity index futures rallying after China announced the implementation of economic stimulus measures following the release of weak trade data yesterday. The measures Beijing announced include increased tax cuts. USD-JPY has rallied by 0.5% in printing a six-day high at 108.75. The biggest movers have been AUD-JPY, NZD-JPY and CAD-JPY, which have all risen by more than 0.6%. AUD-USD posted a four-day high at 0.7222. A side theme has been Sterling gains versus the Dollar, Euro and Yen, which markets anticipating a resounding rejection of UK Prime Minister's Brexit deal by Parliament today, which many pundits, although certainly not all, expecting that this will lead to a new referendum on EU membership. Cable late yesterday pegged a seven-week high at 1.2915. We don't expect run-away gains in the Pound unless there is surer signs that a disorderly no-deal Brexit scenario will be avoided (which is what we expect). Elsewhere, EUR-USD has been plying a narrow range in the upper 1.1400s.

    [EUR, USD]
    EUR-USD has taken a tumble in the early European session, dropping back towards yesterday's six-day low at 1.1450. The low extended the decline from the three-month peak seen at 1.1570 last week. The high was seen following a cacophony of Fed speakers which communicated hawkish-to-neutral shift in the policy stance. Since then, concerns about a slowing Eurozone economy have weighed on EUR-USD. Support is at 1.1439-40, and resistance at 1.1496-98.

    [USD, JPY]
    USD-JPY has rallied by 0.5% in printing a six-day high at 108.75. The biggest movers have been AUD-JPY, NZD-JPY and CAD-JPY, which have all risen by more than 0.6%. The dynamic is a product of a risk-back-on sentiment in markets, with Asian stock markets and U.S. equity index futures rallying after China announced the implementation of economic stimulus measures following the release of weak trade data yesterday. The measures Beijing announced include increased tax cuts. We expect continued choppy price action with an overall downside bias for USD-JPY as the various challenges facing the global economy evolve -- Sino-U.S. trade dispute, less accommodative liquidity, slowing growth. The pair has resistance at 109.10-12.

    [GBP, USD]
    Sterling has lifted against the Dollar, Euro and Yen as market participants anticipate the UK Parliament vote on the EU Withdrawal Agreement and outline for a future relationship. The BBC reported that the government is set to lose the vote by a huge margin of 228. A defeat would oblige Prime Minister May -- as legislated just last week in a sign of Parliament muscle flexing -- to return with proposals for a new way forward by January 21. This would likely lead to Parliament voting on various Plan B options, including "softer" versions of Brexit and/or a new referendum on EU membership. The future looks plural at this juncture. Our best guess remains that a new EU referendum will prove to be the path of least resistance, though how the future will look after that is another question. We do, however, think a disorderly no-deal scenario is unlikely given the overwhelming majority of MPs are against allowing this to happen.

    [USD, CHF]
    EUR-CHF has settled back in the 1.1200s after printing a three-week high at 1.1340 last week. The move was driven by a bout of across-the-board franc selling, which came amid rumours of SNB intervention, which, if this was the case, would look to have been tactically timed to be in concert with the improved risk appetite in global markets. The cross had earlier in the month punched out a four-month low at 1.1184, which was seen as the Swiss currency picked up safe haven demand amid a bout of turmoil in global markets. The SNB remained firmly on hold at its quarterly policy meeting last month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency.

    [USD, CAD]
    USD-CAD ebbed to a four-day low at 1.3244, with the Canadian Dollar and its Dollar bloc brethren finding support from news that China is implementing tax cuts and other measures to stimulate its economy. USD-CAD has support at 1.3214-15, and resistance at 1.3254-55.

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