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By XE Market Analysis October 16, 2019 3:32 am
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    XE Market Analysis: Europe - Oct 16, 2019

    The dollar majors have been trading narrowly so far today. The pound has been consolidating after rallying yesterday as markets were tantalized by the prospect of a Brexit deal, which had until last week looked like a remote possibility. Cable posted five-month peak at 1.2800 just after the London fixing, subsequently correcting to the lower 1.2700s before turning back higher, with the bid presently at 1.2776. The EU had set a deadline of midnight yesterday for a draft of the deal to be legally documented, but that looks to have come and gone. Prime Minister Johnson's official spokesman said that "talks remain constructive but there is more work still to do," and negotiations will be continuing today with the aim of having a deal agreement before the EU's summit tomorrow. Reports confirmed that Johnson has made the big concession on the Irish border, going where former PM May wouldn't by agreeing to plant a customs union down the Irish Sea, separating Northern Ireland from the rest for the UK with regard to customs. A lot of moving parts remain in play. If a deal is agreed, which still remains an "if" albeit with the odds looking good, Johnson will then have to sell it to Parliament and the public. Whether Johnson will have sufficient support for the deal is uncertain at this stage, while the opposition will push for a "confirmatory" referendum, aka a "peoples vote", which would give the public a choice between Brexit with the deal agreed and remain. Elsewhere, the euro is trading buoyantly given the prevailing Brexit positivism, with EUR-USD making a new high for the week, at 1.1060, and EUR-CHF holding near recent highs. USD-JPY posted a fresh 10-week high at 108.89 during the NY afternoon session yesterday.

    [EUR, USD]
    EUR-USD posted a new high for the week, at 1.1060. The euro has been benefiting from the improved mood music coming from the Brexit front. Bigger picture, EUR-USD has been in a clear bear trend since early 2018, descending from levels above 1.2500 over this time period. The 28-month low seen on October 1, at 1.0879, marked a reaffirmation of this trend.

    [USD, JPY]
    USD-JPY posted a fresh 10-week high at 108.89 during the NY afternoon session yesterday, and has since remained buoyant. The new high extends the pronounced rally phase that's been unfolding since the early-October lows under 106.50. The yen continues to be directionally linked to global stock market direction. Risk appetite soared last week on the progress the U.S. and China made on trade, and has extending this week on the back of encouraging Brexit developments. USD-JPY has been trending upwards since the August-25 low at 104.45, which is a 35-month nadir. The prevailing up-phase marks a correction in the bear trend that has been unfolding from the October-28 high at 114.55.

    [GBP, USD]
    The pound has been consolidating after rallying yesterday as markets were tantalized by the prospect of a Brexit deal, which had until last week looked like a remote possibility. Cable posted five-month peak at 1.2800 just after the London fixing, subsequently correcting to the lower 1.2700s before turning back higher, with the bid presently at 1.2776. The EU had set a deadline of midnight yesterday for a draft of the deal to be legally documented, but that looks to have come and gone. Prime Minister Johnson's official spokesman said that "talks remain constructive but there is more work still to do," and negotiations will be continuing today with the aim of having a deal agreement before the EU's summit tomorrow. Reports confirmed that Johnson has made the big concession on the Irish border, going where former PM May wouldn't by agreeing to plant a customs union down the Irish Sea, separating Northern Ireland from the rest for the UK with regard to customs. A lot of moving parts remain in play. If a deal is agreed, which still remains an "if" albeit with the odds looking good, Johnson will then have to sell it to Parliament and the public. Whether Johnson will have sufficient support for the deal is uncertain at this stage, while the opposition will push for a "confirmatory" referendum, aka a "peoples vote", which would give the public a choice between Brexit with the deal agreed and remain.

    [USD, CHF]
    EUR-CHF has been buffeted by Brexit headlines in a will-they-won't-they back and forth regarding the UK and EU chances of reaching a deal, and whether a delay is likely. More of the same seems likely into Thursday's EU summit and the UK's self-imposed deadline of October 19 (Saturday) to achieve a deal (if not, a newly minted law requites the government to ask the EU for an extension). EUR-CHF yesterday rallied back above 1.1000. The cross capped out at a 10-week high on Friday at 1.1039.

    [USD, CAD]
    USD-CAD has found a footing after dropping sharply lower in the latter part of last week. A softening in oil prices thi week has taken the wind out of the sails of the Loonie. The head of OPEC said earlier in the week that the group is thinking of supply curtailment given concerns about flagging global demand. Concerns about demand were also fanned by a batch of weak data out of China this week. USD-CAD has been amid a sideways chop since mid January, ranging from 1.3016 on the downside to 1.3565 on the upside. More of the same looks likely.

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