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By XE Market Analysis November 27, 2019 4:04 am
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    XE Market Analysis: Europe - Nov 27, 2019

    The dollar has traded moderately firmer. The narrow trade-weighted USD index (DXY) rose fractionally to 98.35, which is 3 pips shy of the 13-day high seen on Monday, while EUR-USD ebbed to a 1.1008 low, which is 1 pip short of yesterday's low and 5 pips short of the 13-day nadir seen on Monday. USD-JPY came within 2 pips of the 15-day high seen yesterday, at 109.20. EUR-JPY managed to posted a five-day high, though other yen crosses remained below their respective Tuesday highs. Cable carved out a two-day low at 1.2833, and the dollar also saw modest gains against the Australian dollar. One exception was USD-CAD, which edged out a five-day low at 1.3268, with the Canadian dollar finding some support from buoyant oil prices. Front-month WTI crude prices rose over 2% from yesterday from the prior day's lows, drawing back in on the two-month high seen last week. The rise in oil prices has been concomitant with a risk-on sentiment in global markets after President Trump said that the U.S. and China were in the the "final throes" or hammering out a "phase 1" trade deal. The three major U.S. equity indices once again scaled to new record highs on Wall Street yesterday. Most Asian markets have also gained, though weak industrial profits out of China, which fell 9.9% y/y in October in what is the sharpest annual decline in eight months, dampened the mood. This contraction followed a 5.3% y/y profit drop in September, underscoring the impact that the trade war with the U.S. is having. Following recent PPI and PMI numbers, the data shouldn't have been too much of a shock, but China's CSI 300 stock index sputtered nonetheless, and risk appetite in broader markets moderated. This in turn led to the dollar picking up some safe-haven demand.

    [EUR, USD]
    EUR-USD ebbed to a 1.1008 low, which is 1 pip short of yesterday's low and 5 pips short of the 13-day nadir seen on Monday. The decline has been driven by a broader bid in the dollar, which picked up a measure of safe-haven demand following data showing a 9.9% y/y drop in Chinese industrial profits, which dampened a hitherto robust risk-on sentiment in markets. October U.S. data yesterday showed a fourth consecutive monthly contraction in consumer confidence and an unexpected ebb in new home sales, though confidence still remained at levels consistent with steady consumer spending, while prior-month housing data was revised up. Overall, the U.S. economy still looks to be in a relatively good place, fitting of Fed Chair Powell's "glass half full" characterisation of earlier in the week. In the Eurozone, confidence data over the past week showed some signs of stabilisation in the manufacturing sector, but the preliminary November PMI surveys also showed the spectre that the weakness is spreading to the dominant services sector. We retain a neutral-to-bearish view of EUR-USD. U.S. markets will be winding down into tomorrow's Thanksgiving holiday, which will be the start of a long "bridge" weekend for many market participants in the U.S. EUR-USD has been chopping around 1.1050 since early August, ranging from 1.0879 to 1.1179 over this period. The low marked a two-and-a-half year trough, the culmination of a bear trend that's been unfolding since early 2018, from levels around 1.2500. Momentum of this trend has been waning with the Fed having cut interest rates three times since late July, though markets have now priced out further Fed easing. The Fed's measure of the dollar's broad trade-weighted dollar is at near three-year highs. A continuation of dollar firmness, which we anticipate, would likely keep EUR-USD's bias to the downside.

    [USD, JPY]
    USD-JPY came within 2 pips of the 15-day high seen yesterday, at 109.20. EUR-JPY managed to post a five-day high, though other yen crosses remained below their respective Tuesday highs. A risk-on sentiment in global markets has been keeping the yen on a softening tack, though a sharp drop in October Chinese industrial profits dampened the mood. President Trump said yesterday that the U.S. and China were in the the "final throes" or hammering out a "phase 1" trade deal, which helped the three main U.S. equity indices hit new record highs.The biggest directional driver of the yen will likely to remain the ebb and flow of risk appetite in global markets (there is causation behind this correlation). This will keep developments on the U.S.-Chine trade front will be front and centre. Assuming the "phase 1" deal comes (eventually) to fruition, and with the U.S. economy enjoying what looks like a goldilocks economy -- growth slower, but still holding comfortably in positive expansion with inflation remaining benign -- then more upside would likely be seen in USD-JPY. In Japan, "Abenomics" has been getting a dusting down. Japanese PM Abe earlier in the month pledging a renewed push of fiscal stimulus, while BoJ Governor Kuroda reaffirmed the central bank's commitment to monetary easing to achieve its 2% inflation target (he admitted that "it's taking time").

    [GBP, USD]
    Sterling has lifted out of two-day lows against both the dollar and the euro as London markets react to the latest public opinion polling. Cable has lifted back above 1.2850 after earlier carving out a two-day low during the pre-Europe Asian session, at 1.2833. With two weeks and a day to go until the UK's general election, Politico's current poll tracker is showing support for PM Johnson's Conservative party at 43%, up a point from yesterday, recouping the lost point from the day prior, while support for Labour has remained at 31%. A major focus will now be on the release of YouGov's MRP poll at 22:00 GMT (17:00 ET) today. The poll, with its "multilevel regression and post-stratification" methodology, is widely acclaimed for having accurately portended the outcome of the 2017 general election. This poll also comes with the public having now been able to digest the political manifestos of all the parties, so it will be taken as a being a key prognostication of the election outcome. The pound rallied by about 8% from mid August low on the BoE's real trade-weighted measure, as the risk for a no-deal Brexit fell, but still trades with about a 9% discount from levels prevailing ahead of the vote to leave the EU in June 2016.

    [USD, CHF]
    EUR-CHF has settled at modestly softer levels after printing an 18-day high on Friday at 1.1010. Recent gains have returned the cross to the upper portion of a broadly sideways range that's been persisting over the last three months.

    [USD, CAD]
    USD-CAD edged out a five-day low at 1.3268, with the Canadian dollar finding some support from buoyant oil prices. Front-month WTI crude prices rose over 2% from yesterday from the prior day's lows, drawing back in on the two-month high seen last week. The rise in oil prices has been concomitant with a risk-on sentiment in global markets after President Trump said that the U.S. and China were in the the "final throes" or hammering out a "phase 1" trade deal. USD-CAD remains above the eight-day low seen last Friday at 1.3254. The low was seen after BoC Governor Poloz stated that interest rates are "about right," which was taken as a partial walk-back of recent dovish signalling from the central bank. The 10-year U.S. over Canadian yield spread has been remaining in near lock-step since. At prevailing levels USD-CAD is trading near to the midway point of a broadly sideways range that's been seen since July 2018. More of the same looks likely.

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