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By XE Market Analysis October 18, 2019 3:35 am
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    XE Market Analysis: Europe - Oct 18, 2019

    The dollar has found its feet after coming under pressure yesterday, although the AUD-USD still managed to eke out a fresh one-month high, at 0.6838, despite an ongoing sputtering price action in risk-wary global stock markets. EUR-USD has been holding a narrow range around 1.1120-30, below the seven-week high that was seen yesterday at 1.1139, and USD-JPY has settled above yesterday's two-day low at 108.45. The pound has been lodged in narrow ranges so far today after some high volatility in recent days. Regarding Brexit, the major focus in the UK now is on Saturday's parliamentary vote on PM Johnson's deal with the EU on divorcing terms. It's a tough call as some of the key members that Johnson will be relying on, including from the the ERG faction of his Conservative Party, have not indicated which way they will vote. It's also clear that Johnson will be needing some Labour members to vote for his deal. EU states didn't do Johnson any favours by leaving the door open to a further Brexit delay (overruling Juncker's call for no further extension). Cable yesterday hit a five-month high at 1.2990 before dropping back sharply to a 1.2757 low, subsequently settling in the 1.2800s.

    [EUR, USD]
    EUR-USD has been holding a narrow range around 1.1120-30, below the seven-week high that was seen yesterday at 1.1139. The pair had been buoyed lately by the improved Brexit picture, which has been a benefit to the euro. The dollar, meanwhile, has been weighed down somewhat by a run of U.S. data that has fed the "risk of recession" narrative. EUR-USD is on track to make its first run of three consecutive up weeks since the late June to early July period, needing a close today above 1.1038 to achieve this.

    [USD, JPY]
    USD-JPY has settled above yesterday's two-day low at 108.45. An ongoing sputtering price action in risk-wary global stock markets should keep the pair on downward bias. 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]
    Cable yesterday hit a five-month high at 1.2990 before dropping back sharply to a 1.2757 low, subsequently settling in the 1.2800s. On the Brexit front, the major focus in the UK now is on Saturday's parliamentary vote on PM Johnson's deal with the EU on divorcing terms. It's a tough call as some of the key members that Johnson will be relying on, including from the the ERG faction of his Conservative Party, have not indicated which way they will vote. It's also clear that Johnson will be needing some Labour members to vote for his deal. EU states didn't do Johnson any favours by leaving the door open to a further Brexit delay (overruling Juncker's call for no further extension). There are several possibilities: 1, the vote passes, in which case Brexit is on, subject to the necessary legislation being passed next week (which should be a formality) and the UK leaves on October 31, after which the UK enters a transition period (during which the country remains in the EU's single market and customs union as a new trade deal is hammered out). This will run to the end of 2020, but could be extended by a further two years; 2, the vote passes but a "technical" extension of the October 31 is needed to allow time for ratification; 3, the opposition manages to pass a bill requiring that the deal is subject to a confirmatory referendum, in which case the passage of the deal would be assured (as Labour members would vote for it with this condition) but Brexit will be delayed to allow time for a legally-binding referendum to be organized. The referendum would offer the public a choice between the Brexit deal and remaining in the EU; 4, the deal is rejected, which would trigger a three-month Brexit delay, precursing a general election.

    [USD, CHF]
    EUR-CHF has been lifted by the Brexit deal, which has been supportive of the euro. The cross printed a two-and-a-half-month high at 1.1059 yesterday before pulling back under 1.1000.

    [USD, CAD]
    USD-CAD has found a footing after yesterday posting a two-and-a-half-month low at 1.3131. Increasing signs of U.S. turbulence in the U.S. economy, including a miss retail sales, 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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