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By XE Market Analysis November 30, 2018 2:40 am
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    XE Market Analysis: Europe - Nov 30, 2018

    The Dollar majors have been directionally challenged as market participants sit on their hands into the Trump-Xi meeting at the G20 gathering in Argentine. EUR-USD has remained buoyant, in the upper 1.1300s, holding just below yesterday's one-week high at 1.1401. Cable has remained settled in the upper 1.2700s after failing to sustain gains above 1.2800 over the last couple of days. USD-JPY has been trading in a narrow range, of 113.34-48, so far today, and Yen crosses have seen a similar lack of directional bias. Asia stock markets mostly gained, though South Korea's Kopsi 200 finished with a 0.8% loss and Australia's ASX 200 with a 1.6% decline. As for the Trump-Xi meeting, the official China Daily newspaper has said a trade agreement is possible, and while Trump has said they are "close" to doing something, he also said that he is happy with the current arrangements because of the tariff income. In data, China's official manufacturing PMI survey for November produced the weakest headline since July 2016, of 50.0. Japanese data were mixed, including unchanged unemployment, at 2.4% in October, while the November Tokyo CPI came in at 0.8% y/y, off the median forecast for a 1.1% y/y rate, and October industrial production rose 2.9% m/m, more than double the median forecast for 1.2% m/m growth.

    [EUR, USD]
    While EUR-USD has been amid a big-picture bear trend that's been in play since April, downside momentum has been waning in recent weeks as markets start to factor in pause in the Fed's tightening cycle from next spring. On the flipside, signs of flagging growth momentum in the Eurozone (evident in the flash estimates of the November PMI surveys) and a back-and-forth process between Brussels and Rome over the budget planning of Italy's populist government remain negatives for the Euro. Brexit uncertainty is also presenting risks. EUR-USD has support at 1.1358-60.

    [USD, JPY]
    USD-JPY has been trading in a narrow range, of 113.34-48, so far today, and Yen crosses and most dollar pairings have seen a similar lack of directional bias. Stock markets in Asia have been similarly directionally challenged. The dominant excuse in market narratives is the focus on the upcoming Trump-Xi meeting at the G20 gathering in Argentina, which has taken the status of a risk event for global markets. While the official China Daily newspaper has said today that a trade agreement is possible, and Trump has said they are "close" to doing something, Trump has also said that he is happy with the current arrangements "because what we have right now is billions and billions of dollars coming into the United States in the form of tariffs or taxes." The most interesting data today out of Asia has been China's official manufacturing PMI survey for November, which produced the weakest headline since July 2016, of 50.0, a level indicating flat growth. Japanese data, meanwhile, were a mixed bag, including unchanged unemployment, at 2.4% in October, while the November Tokyo CPI came in at 0.8% y/y, off the median forecast for a 1.1% y/y rate, and October industrial production rose 2.9% m/m, more than double the median forecast for 1.2% m/m growth.

    [GBP, USD]
    Cable has settled in the upper 1.2700s after failing to sustain gains above 1.2800 over the last couple of days. The pair has been in a choppy range, with a slight overall downside bias, for nearly two weeks now, and more of the same looks likely into the UK's December-11 parliament vote on the Brexit deal. While Prime Minister May and her allies are making an all-out effort to sell the deal, it still looks likely that it will be voted down in the House of Commons vote. Labour, which the principal opposition to the government, Northern Ireland's DUP party (the kingmakers of the Tory-led minority government), and a minority of Tory party members (mostly from the Eurosceptic Brexiteer cabal) are all set to vote against the government. In the mix has been the BoE warning of a significant negative impact on the economy in the event of a no-deal Brexit, which followed Chancellor Hammond's remarks on Wednesday that all versions of Brexit will leave the economy worse off. Cable has support at 1.2696-1.2700, which encompasses the four-month lows seen in late October.

    [USD, CHF]
    EUR-CHF has recovered to the mid 1.1300s from the two-month low that was seen on Wednesday at 1.1261. The recovery has tracked the rebound in EUR-USD. EUR-CHF has support at 1.1325.

    [USD, CAD]
    USD-CAD has settled in the upper 1.3200s, consolidating after printing a five-month high earlier in the week at 1.3359. A decline in U.S. Treasury yields after Fed chair Powell affirmed on Wednesday a dovish shift in the policy outlook dented upside momentum in USD-CAD, though the 33%-plus decline in oil prices since early October should keep the Canadian Dollar on an overall downward track. Significant and sustained declines in oil prices is a negative for the Canadian economy as it dents its terms of trade. The Canadian data calendar brings Q3 GDP report later today. We expect growth to slow 2.0% q/q growth, down from 2.9% in Q2. USD-CAD has support at 1.3215-17.

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