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By XE Market Analysis October 17, 2019 4:04 am
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    XE Market Analysis: Europe - Oct 17, 2019

    The pound has turned lower in early London trading on news Northern Ireland's DUP announced that it will not support the plan being discussed by the UK government and EU. Brussels had reportedly said the needed to see that the DUP were on board on the dual customs union plan and tax proposals to ensure that the consent of Northern Irish parties. So, there is no agreement, no legal text of a draft deal, heading into the two-day EU summit. Unless a rabbit is pulled out of the hat, a delay in Brexit is looking likely. Cable has dropped to the mid 1.2700s, falling by over a big figure from yesterday's five-month high at 1.2878. At prevailing levels the pair remains just over 6.5% up on the major-trend low seen in early September. Elsewhere, EUR-USD has remained buoyant after carving out a one-month peak at 1.1085 yesterday. The pair is on track to make its first run of three consecutive up weeks since the late June to early July period. The euro has been outperforming most of the other main currencies, outside the case against sterling, having benefited from increased hopes for a Brexit deal (and diminished odds for a no-deal scenario). USD-JPY has remained underpinned, though off from the 11-week high that was seen earlier in the week, at 108.89. AUD-USD has reversed yesterday's losses, which produced an eight-day low at 0.6723. A high has been printed at 0.6791. The pair, being a correlate of China's trade-war afflicted stock market, is still showing a 0.7% loss from month-ago levels, and is down by 3.9% from year-ago levels. Stock markets are back in sputtering mode. Weakness in U.S. retail sales was a worry, but Q3 corporate earnings have been good while U.S. Treasury Secretary Mnuchin said that the U.S. and Chinese teams are getting the 'Phase 1' trade deal completed, while President Trump hinted at making concessions with the EU.

    [EUR, USD]
    EUR-USD has remained buoyant after carving out a one-month peak at 1.1085 yesterday. The pair is on track to make its first run of three consecutive up weeks since the late June to early July period. The euro has been outperforming most of the other main currencies, outside the case against sterling, having benefited from increased hopes for a Brexit deal (and diminished odds for a no-deal scenario). Increasing signs of U.S. turbulence in the U.S. economy, the latest being yesterday's retail sales miss, which is ominous in so far as it shows the slowing in manufacturing and business investment is spreading to the all-important consumer sector, has also been in the mix of supportive factors for EUR-USD.

    [USD, JPY]
    USD-JPY has remained underpinned, though off from the 11-week high that was seen earlier in the week, at 108.89. 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 extended this week on the back of encouraging Brexit developments before falling away somewhat, reflected by the a return to a sputtering price action in global stock markets. Weakness in U.S. retail sales was a worry, though offset by good Q3 corporate earnings (albeit from the base of diminished expectations) while U.S. Treasury Secretary Mnuchin said that the U.S. and Chinese teams are getting the 'Phase 1' trade deal completed, while President Trump hinted at making concessions with the EU. 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 turned lower in early London trading on news Northern Ireland's DUP announced that it will not support the plan being discussed by the UK government and EU. Brussels had reportedly said the needed to see that the DUP were on board on the dual customs union plan and tax proposals to ensure that the consent of Northern Irish parties. So, there is no agreement, no legal text of a draft deal, heading into the two-day EU summit. Unless a rabbit is pulled out of the hat, a delay in Brexit is looking likely. The UK government is obliged to ask for a three-month extension, as stipulated in the newly-minted Benn bill, in the event that a deal hasn't been reached by October 19. The Brexit Secretary, Stephen Barclay, confirmed yesterday that PM Johnson will send a letter to Brussels seeking an extension -- i.e. comply with the law -- in the event a deal isn't made in time, which apparently marks a step-down from Johnson's hitherto insistence that the UK will be leaving the EU on October 31. Cable has dropped to the mid 1.2700s, falling by over a big figure from yesterday's five-month high at 1.2878. At prevailing levels the pair remains just over 6.5% up on the major-trend low seen in early September.

    [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 been ebbing lower over the last couple of days, but has so far remained above the one-month low seen last Friday at 1.3171. Increasing signs of U.S. turbulence in the U.S. economy, the latest being yesterday's retail sales miss, which is ominous in so far as it shows the slowing in manufacturing and business investment is spreading to the all-important consumer sector, has been taking a toll on the U.S. dollar. 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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