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By XE Market Analysis October 22, 2019 3:41 am
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    XE Market Analysis: Europe - Oct 22, 2019

    Commodity currencies posted fresh highs while the yen retained a softening bias amid a backdrop of rising global equity markets following upbeat rhetoric from both the U.S. and Chinese officials. Q3 corporate earnings have so far been positive, albeit with expectations having been guided lower in the run in to the show-and-tell season. AUD-USD posted a two-month high at 0.6682, AUD-JPY a 12-week high, while NZD-USD ascended into one-month high territory. USD-CAD, meanwhile, printed a three-month low at 1.3071. Canadian PM Trudeau's Liberals are set to form a minority government after a tight election yesterday, though they will have to rely on the left-leaning NDP party to govern, which wants to raise corporate income tax rates and implement a wealth tax, and opposes the Trans Mountain oil pipeline project, which is seen as negatives from the perspective of financial markets. Elsewhere, EUR-USD, after coming under pressure yesterday in the wake of printing a two-month high at 1.1179, settled in the mid 1.1100s. The euro is showing net gains of around 1% against both the dollar and yen from week-ago levels, with markets having pretty much unwound the perceived risk for there being a no-deal Brexit scenario on October 31. Cable has settled in the mid 1.2900s after yesterday posting a five-month high at 1.3012. The pair is up by nearly 9% from the major-trend lows seen in early September. Regarding Brexit, the UK's Parliament will today start voting on the legislation for PM Johnson's divorce deal. This needs to pass at the first go if Brexit is going to happen on October 31. Once the deal has been fully ratified it would still remain subject to the "meaningful vote." The opposition are scheming to either amend the deal so that there is an all-UK customs arrangement, which is unlikely to have sufficient support, and to made the Brexit deal subject to a "confirmatory" referendum, which looks unlikely to pass, though not an impossibility.

    [EUR, USD]
    EUR-USD has remained underpinned after posting a fresh 11-week high at 1.1179 yesterday. The euro has been benefiting from the progress on the Brexit front, with the UK and EU striking a deal on divorcing terms last week. The deal is now in the hands of the UK's Parliament, which on Saturday voted in a bill amendment which effectively guarantees that a no-deal Brexit cannot happen by accident on October 31. The dollar, meanwhile, has been weighed down somewhat by a run of U.S. data that has fed the "risk of recession" narrative, although this is being offset by some upbeat rhetoric from U.S. and Chinese officials with regard to trade negotiations. EUR-USD last week clocked its first run of three consecutive up weeks since the late June to early July period.

    [USD, JPY]
    USD-JPY has remained buoyant, while EUR-JPY rallied into five-month high terrain yesterday, and GBP-JPY back to within a whisker of the five-month high the cross saw last week. Political developments in the UK have further diminished odds for a no-deal Brexit scenario on October 31, while both U.S. and Chinese officials have been sounding out upbeat remarks from the trade-negotiation front, which have injected a risk-on vibe in global markets, in turn driving yen underperformance. 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 has settled in the mid 1.2900s after yesterday posting a five-month high at 1.3012. The pair is up by nearly 9% from the major-trend lows seen in early September. Markets have pretty much unwound the perceived risk for there being a no-deal Brexit scenario on October 31. The UK's Parliament will today start voting on the legislation for PM Johnson's divorce deal. This needs to pass at the first go if Brexit is going to happen on October 31. Once the deal has been fully ratified it would still remain subject to the "meaningful vote." The opposition are scheming to either amend the deal so that there is an all-UK customs arrangement, which is unlikely to have sufficient support, and to made the Brexit deal subject to a "confirmatory" referendum, which looks unlikely to pass, though not an impossibility. Overall, it's too-close-to-call with regard to Johnson's deal making it through. If the legislative votes and, subsequently, the "meaningful vote" passes in a timely manner, then Brexit will happen on time on October 31, or possibly following a short "technical" extension in the deadline. The UK would then enter a transition phase through to the end of 2020, which could be extended by a further two years, during which time the economy would remain in the EU's single market and customs union while a new trade deal is negotiated. If Johnson's deal is voted down, then Brexit will be delayed through to January 31, and, assuming a new referendum hasn't been voted for, focus would turn to a yet-to-be-confirmed 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 last week before settling near 1.1000.

    [USD, CAD]
    USD-CAD printed a three-month low at 1.3071. The pair is down by about 1% form week-ago levels, and is showing just over a 4% decline on the year-to-date. This follows what is now a three consecutive weeks of underperformance. A recovery in global risk appetite (much reduced no-deal Brexit risk, cancellation of planned U.S. December tariff hikes on Chinese goods) has helped underpin the Canadian dollar, and other commodity-correlating currencies. On the domestic scene, Canadian PM Trudeau's Liberals are set to form a minority government after a tight election yesterday, though they will have to rely on the left-leaning NDP party to govern, which wants to raise corporate income tax rates and implement a wealth tax, and opposes the Trans Mountain oil pipeline project, which is seen as negatives from the perspective of financial markets.

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