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By XE Market Analysis March 14, 2019 4:32 am
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    XE Market Analysis: Europe - Mar 14, 2019

    The Pound has come off the boil after surging on the unexpected passage of a motion, which hadn't even been expected to be selected by the House Speaker to be voted on, that rejects a no-deal Brexit under any scenario. The vote split was close, at 312 to 308. In the original vote on a resolution to leave the EU without a deal (specifically on March 29, but leaving the option for leaving without a deal in the future), this was rejected by a majority of 43. Neither the motion or the resolution are legally binding, but they demonstrate the power and intent Parliament has to take over the Brexit process. Parliament will today vote on delaying Brexit, which is expected to pass by a large majority. Amid the fast-paced developments, it's become clear that at least 20 members of the ERG group in Prime Minister May's Tory party (Eurosceptic, so-called Brexiteer group) do not intend to vote for May's Withdrawal Agreement unless there is a full concession from the EU on the Brexit backstop. This suggests that the twice failed Brexit deal would flop again in a third vote, with most pundits not expecting the EU to make the necessary concessions. The referendum option, at the juncture, doesn't seem to have sufficient support. This shifts the odds more in favour of long delayed (21 months) and "soft" Brexit deal, by cross-party consensus. Cable stormed to a nine-month high at 1.3382 before correcting to and settling in the upper 1.3200s. The pair is still showing a 2.1% gain on the week, while Sterling is up by an averaged 5.1% against the Dollar, Euro and Yen on the year-to-date. Elsewhere, USD-JPY has edged out a one-week peak 111.62. EUR-USD has settled in the lower 1.1300s, off yesterday's nine-day high at 1.1330, seen after soft U.S. PPI figures.

    [EUR, USD]
    EUR-USD has settled in the lower 1.1300s, off yesterday's nine-day high at 1.1338, seen after soft U.S. PPI figures. The PPI data followed benign CPI data for the same month, released the day before, which have maintained the Fed-on-hold view. Both the 10-year U.S. and Bund yields have declined by around 13-15 bp since late February/early March. EUR-USD has traded lower over this period, but after the rebound from last week's post-ECB low at 1.1176, the pair is now only moderately net lower. The Brexit-related surge in the Pound this week has helped buoy the Euro against the Dollar and other currencies. We still, however, retain an overall bearish view of EUR-USD, anticipating the U.S. economy to hold up better than the Eurozone. Last Friday's U.S. jobs report disappointed bigly at the headline level, but components were much better while the low jobs number can be largely attributed to an outsized weather hit through the BLS survey seek, especially in the goods sector overall and construction in particular. The monthly aggregates for February should prove stronger than the data from the BLS survey week, and we expect a solid 230k March payroll bounce as weather distortions are reversed. EUR-USD has resistance at 1.1340.

    [USD, JPY]
    USD-JPY has edged out a one-week peak 111.62, as has EUR-JPY, while AUD-JPY had lifted into nine-day high territory and GBP-JPY into five-month high terrain. The later has been buoyed by Brexit-related Sterling outperformance, while the Yen itself has been trading generally softer, despite a lacklustre sentiment in global equity markets with data showing Chinese industrial production falling to a 17-year low, offset partially by above-forecast retail sales an fixed asset investment. The MSCI Asia-Pacific (ex-Japan) index was pulled into the red by a near 2% dive in China's SSE index. Japan's Nikkei 225 closed with a fractional gain after giving up intraday gains. The MSCI still remains up by nearly 10% on the year-to-date. On the U.S.-China trade negotiation front, President Trump said yesterday that he was in no rush, which has been somewhat dispiriting for investors, especially as no date has been set for a summit between Trump and Xi (which is meant to happen by the end of March). One supportive factor for USD-JPY has been the rotation lower in U.S. yields, with the 10-year T-note yield having settled near 2.62% after trading near 2.75% at the start of the month. There remains a risk for a sustained risk-off phase, given the high valuations in global equity markets and trade concerns and softening corporate earnings, which in turn would have the potential to generate Yen outperformance. USD-JPY has support at 110.85, and resistance at 111.70.

    [GBP, USD]
    The Pound has come off the boil after surging on the unexpected passage of a motion, which hadn't even been expected to be selected by the House Speaker to be voted on, that rejects a no-deal Brexit under any scenario. The vote split was close, at 312 to 308. In the original vote on a resolution to leave the EU without a deal (specifically on March 29, but leaving the option for leaving without a deal in the future), this was rejected by a majority of 43. Neither the motion or the resolution are legally binding, but they demonstrate the power and intent Parliament has to take over the Brexit process. Parliament will today vote on delaying Brexit, which is expected to pass by a large majority. Amid the fast-paced developments, it's become clear that at least 20 members of the ERG group in Prime Minister May's Tory party (Eurosceptic, so-called Brexiteer group) do not intend to vote for May's Withdrawal Agreement unless there is a full concession from the EU on the Brexit backstop. This suggests that the twice failed Brexit deal would flop again in a third vote, with most pundits not expecting the EU to make the necessary concessions. The referendum option, at the juncture, doesn't seem to have sufficient support. This shifts the odds more in favour of long delayed (21 months) and "soft" Brexit deal, by cross-party consensus. Cable stormed to a nine-month high at 1.3382 before correcting to and settling in the upper 1.3200s. The pair is still showing a 2.1% gain on the week, while Sterling is up by an averaged 5.1% against the Dollar, Euro and Yen on the year-to-date.

    [USD, CHF]
    EUR-CHF has consolidated near the two-week high seen earlier in the week at 1.1385, buoyed by the rebound in EUR-USD. The cross has continued on a relatively choppy path, the latest phase of which have been the current rebound after sharp Euro declines following the ECB's lending move last Thursday. The cross has been seeing relatively high volatility since the start of the year, often times characterized by bouts of pronounced underperformance in the Swiss franc that have often been accompanied by talk/suspicions of SNB intervention. SNB vice president, Zurbruegg, said recently 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 printed a 10-day low at 1.3287, which is the culmination of four consecutive down sessions. This continues a downside bias that has been imparted by last Friday's U.S. and Canadian employment reports, which came in with respective worse-than and better-than headline readings. Rekindled oil price gains have also been giving the Loonie an underpinning. The Canadian currency has more than recovered losses seen after last week's dovish turn by the BoC, which stated at its policy review that there is "increased uncertainty about the timing of future rate increases." USD-CAD resistance comes in at 1.3344-77, and support at 1.3260.

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