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By XE Market Analysis January 30, 2019 3:34 am
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    XE Market Analysis: Europe - Jan 30, 2019

    The Dollar majors have been plying narrow ranges for the most part, with Sterling consolidating after dropping by about 1% versus the Dollar following the UK Parliament's Brexit votes late yesterday. USD-JPY has traded within a 25 pip range so far today, in the low-to-mid 109.0s. Most Yen crosses have been similarly directionally challenged, though AUD-JPY was an exception, rising over 0.5% to a two-day peak at 78.71. Stocks markets have been buoyed by a near 6% surge in Apple shares after the global tech bellwether reported sharp growth in its services business, while it's CEO Tim Cook, who is in regular contact with President Trump, added that trade tension between the U.S. and China has been easing in January. There still remains a healthy degree of wariness in market sentiment, however, with participants waiting to see whether there will be a breakthrough in the current round of trade talks between the U.S. and China, and waiting on Fed policy guidance, with the central bank concluding today its two-day FOMC meeting, with most expecting caution to prevail given the data blind spots (a consequence of the partial government shutdown). Brexit concerns have also ratcheted up, with the UK Parliament rejecting a number of amendments that would have delayed Brexit. Cable tumbled from the levels above 1.3150 to levels around 1.3050. Elsewhere, EUR-USD settled in the lower 1.1400s, consolidating a recent run higher that yesterday left a two-week peak at 1.1450.

    [EUR, USD]
    EUR-USD settled in the lower 1.1400s, consolidating a recent run higher that yesterday left a two-week peak at 1.1450. The pair is now trading moderately to the north of the midway point of a broadly sideways range that's been unfolding for over two months now. The low over this period is 1.1215 and the high is 1.1570. What's curtailing the scope for downside progress is the relatively neutral outlook for Fed policy, while the evident slowing in the Eurozone economy is at the same time curtailing upside potential. We expect and overall sideways pattern to continue to unroll. Support comes in at 1.1385-87, and resistance at 1.1486-88.

    [USD, JPY]
    USD-JPY has traded within a 25 pip range so far today, in the low-to-mid 109.0s. Most Yen crosses have been similarly directionally challenged, though AUD-JPY was an exception, rising over 0.5% to a two-day peak at 78.71. Stocks markets have been buoyed by a near 6% surge in Apple shares after the global tech bellwether reported sharp growth in its services business, while it's CEO Tim Cook, who is in regular contact with President Trump, added that trade tension between the U.S. and China has been easing in January. There still remains a healthy degree of wariness in market sentiment, however, with participants waiting to see whether there will be a breakthrough in the current round of trade talks between the U.S. and China, and waiting on Fed policy guidance, with the central bank concluding today its two-day FOMC meeting, with most expecting caution to prevail given the data blind spots (a consequence of the partial government shutdown). Brexit concerns have also ratcheted up, with the UK Parliament rejecting a number of amendments that would have delayed Brexit. Parliament also voted for May to return to Brussels to try and win a concession on the Irish backstop -- but this was promptly rejected by the EU. The MSCI Asia-Pacific (ex Japan) index is little changed, while Japan's Nikkei 225 closed with a 0.5% loss. S&P 500 futures are down fractionally, by 0.1%, after the cash index close on Wall Street yesterday with a 0.15% decline.

    [GBP, USD]
    Sterling has consolidated lower after dropping by about 1% versus the Dollar following the UK Parliament's Brexit votes late yesterday. Cable tumbled from the levels above 1.3150 to levels around 1.3050. The odds for a delayed Brexit have declined while the odds for a disorderly no-deal Brexit look to have grown with the UK Parliament rejecting two amendments that would have delayed Brexit in the event a withdrawal deal was not struck by mid February. Parliament also voted for Prime Minister May to return to Brussels to try and win a concession on the Irish backstop -- but this was both promptly and flatly rejected by the European council president, Tusk, who said that the existing Withdrawal Agreement is "the best and only way to ensure an orderly withdrawal" of the UK from the EU. May will have until February 13, and if no new deal is forthcoming by then, her government will then table a statement about what it plans to do next and allow Parliament to vote on it on February 14. One cause for optimism is that the leader of the Labour opposition, Jeremy Corbyn, will now be talking with the PM, having hitherto refused to do so, suggesting there is hope for a cross-party consensus being formed on an alternative withdrawal plan. While Parliament also voted for an amendment that declares its opposition to a no-deal Brexit, this is nonbinding and aspirational. We think a no-deal Brexit will be avoided. While May, who voted for the UK to remain in the EU at the referendum in 2016, has been utilizing the threat of a chaotic no-deal exit for negotiating leverage, we don't think neither herself, her government or Parliament, will ultimately resolve to ensure a no-deal scenario doesn't become a reality.

    [USD, CHF]
    EUR-CHF clocked a 10-week high at 1.1394. This extends a phase of relatively high volatility that the franc has seen, which has seeing several periods of pronounced underperformance, which have often been accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said last week that "current monetary policy is the right one and we will continue to with it for some time." He said 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. SNB vice president, Zurbruegg, also said last week 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."

    [USD, CAD]
    USD-CAD has settled in the mid 1.3200s, up from the 18-day low seen at 1.3202 on Monday. The pair has resistance at 1.3311-12. Much will depend on whether there is any breakthrough, or at the least significant thawing, in U.S.-China trade relations at this week's talks. Any good news would likely spark outperformance in the Canadian currency. GDP for November (Thursday) is the only highlight on the Canadian calendar this week. The economy is on track to contract 0.1% in November (m/m, sa) as the sharp decline in oil prices materially impacted the economy.

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