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By XE Market Analysis October 1, 2019 4:08 am
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    XE Market Analysis: Europe - Oct 01, 2019

    The Australian has taken a tumbled on RBA guidance, with the central bank's governor, Lowe, repeating in his post-policy meeting statement that low interest rates will be required for an extended period of time. This followed a decision to leave the cash rate unchanged at its record low 0.75%. AUD-USD dropped over 1% in making a one-month low at 0.6700. The pair's 10-year low, seen in August, is at 0.6677. NZD-USD concurrently posted a fresh four-year low, at 0.6227, with the NZ dollar still reeling from yesterday's much weaker than expected business conditions survey out of New Zealand. Both of the antipodean economies have been hit by the U.S.-China trade war. Over in Japan, the BoJ's quarterly tankan survey showed confidence at big manufacturers to be at its weakest in six years, for the same reason. Despite this, stock markets in Asia (ex China, where markets have been closed today, and will be until next Tuesday) have been buoyant, hoping that next week's round of senior face-to-face meetings between the U.S. and China will be fruitful. The hopes appear to be centred on a trade deal, even only an "interim" deal. The U.S. seems intent on a strategic disengagement from China, though at the same time President Trump will be aware of the correlation between his approval rating and trade negotiations going well. Amid this backdrop the dollar has been trading with a firming bias. USD-JPY eked out a near two-week high at 108.29, and EUR-USD has punched out a new 28-month low at 1.0879. Cable is within a few pips from three-week lows.

    [EUR, USD]
    EUR-USD has punched out a new 28-month low at 1.0879, which on this occasion has reflected broader dollar firmness (with EUR-JPY, EUR.CHF and other euro crosses holding steady or gaining). The new big-trend low a fresh reaffirmation of a bear trend that's been in play since early 2018. More of the same looks likely. The U.S. economy and Wall Street continues to hold up relatively well -- although showing signs of softening and although a confluence of issues of potentially economy-distrupting proportions (trade warring, Iran risk, presidential impeachment) hang over the horizon like a dark cloud -- while data out of the Eurozone over the last week have exacerbated fears of recession. The September Eurozone ESI economic confidence, for instance, slumped to 101.7 from 103.1 in the previous month, much weaker than expected headline and the lowest number since February 2015, while preliminary September Eurozone PMI readings showed a marked contraction in manufacturing activity, with service sector activity also slowing sharply, leaving the composite at just 50.4, barely above the 50 point no change mark. The U.S. data calendar this week will be important to with several key economic reports on the calendar that could sway the FOMC's decision on October 30. As always, the nonfarm payroll report (Friday) will a major for the economic outlook and will help guide the FOMC's decision on October 30. There's also manufacturing and non-manufacturing PMIs. The markets and the Fed will be very wary of cracks developing in the labor market and manufacturing. The Eurozone data calendar this week is highlighted inflation data. Overall September Eurozone CPI is expected at a benign 1.0% y/y. There are lots of ECB policymakers due to speak this week, which should a deliver a strong net dovish message.

    [USD, JPY]
    USD-JPY eked out a near two-week high at 108.29, buoyed by a generally firmer dollar and a degree of yen underperformance amid a backdrop of rising stock markets. The BoJ's quarterly Tankan survey also showed confidence at big manufacturers to be at its weakest in six years. While the U.S. and Japan came to a trade deal, the Japanese economy has been indirectly hit by the U.S.-China trade spat. Japanese and other stock markets in Asia still rallied amid hopes that next week's round of senior face-to-face meetings between the U.S. and China will be fruitful. The hopes appear to be centred on a trade deal, even if only an "interim" deal. The U.S. seems intent on a strategic disengagement from China, though at the same time President Trump will be aware of the correlation between his approval rating and trade negotiations going well.

    [GBP, USD]
    Cable has been steady, near the recent three-week low at 1.2271. The UK media have reported that Prime Minister Johnson will be giving its full plan for alternative arrangements for a post-Brexit Irish border solution over the next day, though don't hold your breath as EU officials are already aware of the plan's outline, and have communicated dissatisfaction with it. Opposition parties, meanwhile, are plotting to stage a confidence motion as soon as this week to take down Johnson's government, concerned that he might on technicality disregard the new law preventing a no-deal Brexit on October 31 in the event that a deal has been achieved. This hasn't until now been looking a viable option given that the opposition have been divided about who would lead an interim government, with leader of the opposition, Labour's Corbyn, unpopular. In the event this happens, a delay in Brexit to January 31 would be all but assured, with a general election likely in late November.

    [USD, CHF]
    EUR-CHF has found a toehold after about a week-long spell of underperformance, which culminated in a three-week high being printed last Wednesday at 1.0832. The declines followed the SNB's quarterly policy announcement last week, which will be frustrating to Swiss policymakers given their chronic concerns of the franc's chronic state of overvalue-ment (which regularly tops the Economist magazine's Big Mac purchasing parity comparison of currencies). The 26-month seen in early September at 1.0811 has so far remained untroubled, but still looks vulnerable.

    [USD, CAD]
    USD-CAD has recouped back above 1.3250, a level that the pair has been gravitating around for over a week now. Oil prices have steadied after more than giving back the sharp gains seen in the immediate wake of the attack on Saudi crude facilities. Some key data loom on both the U.S. and Canadian calendars this week. The U.S. schedule culminates in the release of the September jobs report on Friday. The risks relative to expectations are clearly to the downside regarding upcoming U.S. economic reports, which generating downside bias in USD-CAD. As for Canadian data, July GDP (Tuesday) is expected to reveal a 0.1% gain (m/m, sa) after the 0.2% rise in June, consistent with slowing in Q3 GDP from the 3.7% clip revealed in the separate real Q2 measure. Canada's trade balance (Friday) is expected to show a narrowing in the deficit to -C$1.0 bln in August from -C$1.1 bln in July. The August industrial product price index is up today, though isn't often a market mover. Overall, assuming oil prices remain capped, and assuming incoming U.S. versus Canadian data maintains a slight dovish gap in Fed versus BoC outlooks, USD-CAD's looks likely to retain a moderate downward track.

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