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By XE Market Analysis March 22, 2019 4:41 am
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    XE Market Analysis: Europe - Mar 22, 2019

    The Pound has traded firmer in the wake of the EU granting an extension in the Brexit process. A two-week delay has been stimulated for UK Prime Minister May to get her deal through Parliament or come up with another plan. If the PM's deal is passed, then the UK would have until to May 22 to get the necessary withdrawal legislation done before exiting the EU. Things remain fluid, though one thing is certain is that March 29 has ceased to be Brexit day. A third vote on May's deal, if it happens, would be hard to call. The EU is not likely to make the concessions on the Irish backstop which the DUP and at least 20 of the hardline Brexiteers in the Tory party demand, but faced with the likelihood of Parliament taking control of the Brexit process, they conceivably could be persuaded. The Brexit extension will also buy time for Parliament -- which is by significant majority staunchly against a no-deal scenario -- to wrest control of the Brexit process, which would all by wipe out the risk for a no-deal scenario. There is already a motion that would allow this tabled for Monday. Cable has settled near 1.3150 after recovering from yesterday's 1.3004 low. Elsewhere, EUR-USD corrected yesterday following a run of eight consecutive up days. The upward run culminated in a six-week peak at 1.1448, with the pair having now settled in the upper 1.1300s after printing a correction low at 1.1342. The 4 bp drop in Bund yields yesterday, which hit 28-month lows, weighed on the euro. USD-JPY has been entrenched in a narrow range of less than 20 pips, centred on 110.75.

    [EUR, USD]
    EUR-USD corrected yesterday following a run of eight consecutive up days. The upward run culminated in a six-week peak at 1.1448, with the pair having now settled in the upper 1.1300s after printing a correction low at 1.1342. EUR-USD remains up by 1.8% from the 21-month low see on March 7. While the Fed's reaffirmed dovish turn this week, which followed benign inflation figures out of the U.S., the Eurozone economy has been losing momentum, with acute Brexit uncertainty taking a toll, while the 10-year Bund yields dove to 0.038%, the lowest level seen since November 2016. EUR-USD has now returned to midway levels of the 1.1177-1.1570 range that's been seen since the start of the year. EUR-USD has resistance at 1.1143-48, which encompasses both Wednesday's high and the 200-day moving average. The focus in Europe will remain on Brexit. The EU granted the UK a two week extension to allow time for UK Prime Minister May's Brexit deal to pass in Parliament or for her to come up with another plan. Preliminary Eurozone PMI data for March will be of interest after weakness in February. We expect the March flash composite PMI to come in at 52.0 (median same) after 51.9 in February, which would signal a steadying in economic activity. Anything below this would likely spark Euro selling.

    [USD, JPY]
    USD-JPY has been entrenched in a narrow range of less than 20 pips, centred on 110.75, so far in Tokyo trading, where markets have returned after yesterday's holiday. Yen crosses, and most dollar pairings, have been similarly directionally challenged so far. Japan's nationwide core CPI undershot expectations at 0.7% y/y in February. The median forecast had been for 0.8% y/y. The data will maintain pressure on the BoJ to persist with ultra accommodative monetary policy, in the seemingly forlorn endeavour to reach its 2% target. The data cast little impact on the yen, although still undermined bearish arguments for USD-JPY following benign inflation data in the U.S. and the Fed's reaffirmed dovish turn. The 10-year JGB yield hit -0.050%, its lowest since November 2016. In equity markets, the MSCI Asia-Pacific (ex-Japan) index hit a fresh six-and-a-half-year high in early trade before retreating. Most indices in Asia are presently nursing moderate declines. Japan's Nikkei 225 is down 0.3%, while China's CSI 300 is 0.7% for the worse. USD-JPY has resistance at 111.05-07, and support at 110.25-30.

    [GBP, USD]
    The Pound has traded firmer in the wake of the EU granting an extension in the Brexit process. A two-week delay has been stimulated for UK Prime Minister May to get her deal through Parliament or come up with another plan. If the PM's deal is passed, then the UK would have until to May 22 to get the necessary withdrawal legislation done before exiting the EU. Things remain fluid, though one thing is certain is that March 29 has ceased to be Brexit day. A third vote on May's deal, if it happens, would be hard to call. The EU is not likely to make the concessions on the Irish backstop which the DUP and at least 20 of the hardline Brexiteers in the Tory party demand, but faced with the likelihood of Parliament taking control of the Brexit process, they conceivably could be persuaded. The Brexit extension will also buy time for Parliament -- which is by significant majority staunchly against a no-deal scenario -- to wrest control of the Brexit process, which would all by wipe out the risk for a no-deal scenario. There is already a motion that would allow this tabled for Monday. Cable has settled near 1.3150 after recovering from yesterday's 1.3004 low.

    [USD, CHF]
    EUR-CHF dove sharply yesterday to a two-month low at 1.1266, subsequently steadying in the upper 1.1200s. The Euro came under pressure as the 10-year Bund yield hit 28-month lows. The cross has been seeing choppy directional impulses 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.

    [USD, CAD]
    USD-CAD rebounded from recent losses, tracking a broader price action in the U.S. Dollar. Above forecast data out of the U.S., including the latest readings on jobless claims and Philly Fed index, propped up Treasury yields. At the same time oil prices pulled back from fresh trend highs. USD-CAD saw a rebound high at 1.3400 before the pair settled back near 1.3350. Canadian February CPI data will be released today. We expect a 1.4% y/y headline, which would match the January rate. The core measures are expected to hold just under a 2.0% y/y clip in February, consistent with a subdued backdrop for underlying inflation. Retail sales, also up today, has us anticipating growth of 0.3% in January after the 0.1% dip in December. Data in line with expectations should't have much impact on the Canadian Dollar. USD-CAD resistance at 1.3358-60.

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