Home > XE Currency Blog > XE Market Analysis: Europe - Oct 11, 2019

AD

XE Currency Blog

Topics6749 Posts6794
By XE Market Analysis October 11, 2019 4:25 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4673
    XE Market Analysis: Europe - Oct 11, 2019

    Risk-on positioning has continued to be expressed in currencies, which has seen the yen edge out fresh lows and the dollar bloc and most developing-world currencies rise (even the Turkish lira has come off the lows over the last day). Markets are hopeful that the U.S. and China will reach a partial trade agreement. Trump said the first day of the 13th round of trade talk were "very, very good," while a White House official cited by Reuters said the talks were "probably better than expected" and a U.S. Chamber of Commerce official said that the two sides were on track to make a currency agreement as soon today (Friday). The S&P 500 closed with a 0.6% gain yesterday, and futures of the index are showing a 0.3% gain in the overnight session. This has put the bellwether index back to within about 2.5% of its record level. In the mix is an unexpectedly positive Brexit vibe. The meeting between UK PM Johnson and Irish PM Varadkar produced a statement saying that they agreed they "could see a pathway to a possible deal" with regard to the problematic issue of making Brexit work while preserving the Good Friday Agreement. What was of particular note was the tone from Varadkar, who -- having hitherto been consistently critical of proposals for "alternative arrangements" for the Irish border backstop -- said that he is "now absolutely convinced" that Johnson wants a Brexit deal. The pound rallied by over 1.5% on this, the currency's biggest single day rise since mid March (when there was news of the first Brexit deadline being delayed). The UK and EU will continue negotiations today and into next week's EU summit. The UK's Parliament will be sitting on October 19 (a Saturday), which is the deadline for any deal to be voted on.

    [EUR, USD]
    The euro is showing a rare weekly gain versus most other currencies, showing a 0.4% gain versus the dollar, a 0.6% rise on the Swiss franc and a near 1.5% advance against the yen. The improved mood music coming from the Brexit front (Irish PM saying that he is now "absolutely convinced" PM Johnson wants a deal) suggests that the common currency will be able to maintain an underlying bid against the dollar and other currencies, ex sterling, at least for now. EUR-USD yesterday pegged a three-week high at 1.1033. Both the Eurozone and U.S. economies are experiencing economic slowing, the former at a more advanced stage, near to tipping into recession. Bigger picture, EUR-USD has been in a clear bear trend since early 2018, descending from levels above 1.2500 over this time period. Last Monday's 28-month low at 1.0879 marked a reaffirmation of this trend.

    [USD, JPY]
    USD-JPY printed a nine-day high at 108.13, while EUR-JPY and AUD-JPY have scaled into respective three-week and 10-day high terrain. The weakening in the yen has been concomitant with a rally in global stock markets, as per the long standing inverse correlation between the two. For the prevailing trend to sustain, markets will need some proof being put the pudding of U.S.-China trade negotiations; that is, for the two sides reach a partial trade agreement. Trump said the first day of the 13th round of trade talk were "very, very good," while a White House official cited by Reuters said the talks were "probably better than expected" and a U.S. Chamber of Commerce official said that the two sides were on track to make a currency agreement as soon today (Friday). The S&P 500 closed with a 0.6% gain yesterday, and futures of the index are showing a 0.3% gain in the overnight session. This has put the bellwether index back to within about 2.5% of its record level. In the mix is an unexpectedly positive Brexit vibe, with Irish PM Varadkar, hitherto consistently critical of proposals for "alternative arrangements" for the Irish border backstop, saying following a meeting with his British counterpart that he is "now absolutely convinced" that PM Johnson wants a Brexit deal. Markets will be wanting to seen some proof being put into the pudding of this one, too. The key date here is October 19, when Parliament will sit to debate and vote on any deal that Johnson may come up with.

    [GBP, USD]
    The pound rallied strongly on an outbreak of an unexpectedly positive Brexit vibe. The meeting between UK PM Johnson and Irish PM Varadkar yesterday produced a statement saying that they agreed they "could see a pathway to a possible deal" with regard to the problematic issue of making Brexit work while preserving the Good Friday Agreement. What was of particular note was the tone from Varadkar, who -- having hitherto been consistently critical of proposals for "alternative arrangements" for the Irish border backstop -- said that he is "now absolutely convinced" that Johnson wants a Brexit deal. The pound rallied by over 1.5% on this, the currency's biggest single day rise since mid March (when there was news of the first Brexit deadline being delayed). The UK and EU will continue negotiations today and into next week's EU summit. The UK's Parliament will be sitting on October 19 (a Saturday), which is the deadline for any deal to be voted on. Judging by Varadkar's remarks, Johnson may be willing to make concessions. One possible concession would be to agree to Northern Ireland remaining in the customs union, which would effectively put a border down the Irish sea between Northern Ireland and the rest of the UK. It would be Johnson selling out on the DUP (the unionists), which was the king maker of the Conservatives minority government, but there is majority support for this in Northern Ireland (58.4% in a LucidTalk poll in August).

    [USD, CHF]
    EUR-CHF has rallied to a three-week high of 1.0995. The positive turn in Brexit, with a deal suddenly looking to be in the realms of possibility following the meeting of the Irish and British leaders yesterday, has driven the most recent leg higher in the cross, being a potentially positive development for the Eurozone and with markets having being demanding a no-deal Brexit discount in the euro, in addition to the pound. EUR-CHF has put in some further distance from the 27-month low seen in early September at 1.0811, and is set to make this the second weekly gain in a row.

    [USD, CAD]
    USD-CAD has drifted lower over the last couple of days, and we expect the bias to remain to the downside for now. Oil prices have jumped higher, which should be support for the Canadian currency. The head of OPEC said that the group is thinking of supply curtailment given concerns about flagging global demand. The geopolitical situation in the Mideast also remains fragile. An explosion on a Iranian oil taker was, according to Tehran, caused by a missile strike. Turkey's incursion into Syria is also a potential destabilizer for the oil-producing region. Canada's September employment report is up today. We expect a rise of 5.0k in the headline jobs number after the unexpectedly robust 81.1k surge in August. The unemployment rate is seen at 5.7%, matching the rate seen in August. In-line data should impact BoC policy, which we anticipate will retain a neutral wait-and-stance stance at its policy review on October 30.

    Paste link in email or IM