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By XE Market Analysis October 24, 2019 4:44 am
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    XE Market Analysis: Europe - Oct 24, 2019

    The dollar has retained a softening bias against most currencies, which has seen EUR-USD carve out a high at 1.1142 and Cable a peak of 1.2928, up from respective lows from yesterday at 1.1106 and 1.2841. One exception is the case of USD-JPY, which has remained buoyant with the yen underperforming most other currencies amid a backdrop of cautious risk taking in global markets. The pair printed a two-day high at 108.70 yesterday, and remains a short distance from the 12-week high seen last week at 108.94. The BoJ warned today about riskier lending practices of financial firms as a consequence of super accommodative monetary conditions, while Japanese factory activity slowed at the quickest rate in more than three years in October, hurt by slowing global demand and the associated trade frictions. Stock markets have remain upbeat, and the S&P 500 is within 1% of its record high. The truce in U.S.-China trade warring and the near ruling out of a no-deal Brexit scenario on October 31, along with the U.S. lifting of sanctions against Turkey, have been positives for investor sentiment. The AUD-JPY cross has been bid up as a consequence of this backdrop, essentially being a forex market barometer of global risk appetite. While off its recent highs, the cross is showing a 3.5% gain on the month so far, although it remains down by 3.9% on the year-to-date.

    [EUR, USD]
    EUR-USD carved out a high at 1.1142, up from yesterday's low at 1.1106. The 12-week peak seen on Monday is at 1.1179. EUR-JPY and EUR-CHF, among other euro crosses have remained underpinned, too. From month-ago levels, the common currency is showing a 1.7% gain against the dollar, a 2.5% rise on the yen, and a 1.6% advance versus the Swiss franc, although is down by 2.7% in the case against the outperforming pound. The substantial abatement in no-deal Brexit risk has boosted both sterling and the euro against most other currencies. We still class EUR-USD as being amid a bear trend that's been unfolding since early 2018, from levels around 1.2500. The trend has coincided with the 10-year Bund yield dropping from levels over 0.70% to the prevailing -0.40% yield (a -0.739% low was seen in early September).

    [USD, JPY]
    USD-JPY has remained buoyant with the yen underperforming most other currencies amid a backdrop of cautious risk taking in global markets. The pair printed a two-day high at 108.70 yesterday, and remains a short distance from the 12-week high seen last week at 108.94. The BoJ warned today about riskier lending practices of financial firms as a consequence of super accommodative monetary conditions, while Japanese factory activity slowed at the quickest rate in more than three years in October, hurt by slowing global demand and the associated trade frictions. Stock markets have remain upbeat, however, and the S&P 500 is within 1% of its record high. The truce in U.S.-China trade warring and the near ruling out of a no-deal Brexit scenario on October 31, along with the U.S. lifting of sanctions against Turkey, have been positives for investor sentiment. The AUD-JPY cross has been bid up as a consequence of this backdrop, essentially being a forex market barometer of global risk appetite. While off its recent highs, the cross is showing a 3.5% gain on the month so far, although it remains down by 3.9% on the year-to-date.

    [GBP, USD]
    Cable has settled around the 1.2900 mark, below the five-month peak seen on Tuesday at 1.3012, which was the culmination of a pronounced phase of sterling outperformance. Her Majesty's currency is up by over 4.5% from month-ago levels against the dollar, and by 5.4% and 2.7% in the respective cases against the yen and euro over this time frame. Political developments in the UK have greatly diminished the risk for there being a no-deal Brexit scenario on October 31. With the government now unable to ratify PM Johnson's Brexit deal by month end, an extension is now more than likely. The ball is in the EU's hands, which is expected to announce its decision on Friday. The expectation is, as derived from indications from the Irish PM and some EU heavyweight figures, that the EU will grant a flexible extension with an end-date of January 31. PM Johnson has stated that he wants a general election in the event the EU grants an extension that would allow sufficient time for one to be implemented. Labour has said it will support holding an election (there needs to be two thirds support among House members for an out-of-cycle election). Some are arguing that Johnson, rather than pushing for an election, should continue to push ahead with the ratification and approval of his Brexit withdrawal deal, but we doubt he will given the usual circumstance of the opposition being in the majority and apt to demand modifications to the deal in a way that would be objectionable to Johnson and his allies. As for Labour, some political pundits are surprised that the party isn't pushing for a second referendum on EU membership rather than a general election given its poor standing in polling. Overall, the most likely scenario from here is that the EU formally permits an extension and a UK general election is staged by early December. An election will be hard to call, especially coming in the Christmas season, and with opposition set on forming tactical voting pacts to ensure the anti-Tory/anti Brexit Party vote isn't split.

    [USD, CHF]
    EUR-CHF has been lifted recently by the diminishing in no-deal Brexit risks, which has been supportive of the euro.. The cross last week printed a two-and-a-half-month high at 1.1059 and has since remained buoyant.

    [USD, CAD]
    USD-CAD edged out a fresh three-month low at 1.3066, with the pair having now fallen by just over 2% over the last two weeks. This decline has been concomitant with a 6%-plus rise in oil prices over the same period, which is a positive lead for the Canadian dollar. An improvement in risk appetite in global markets has been at play, which has lifted the commodity-correlating dollar bloc currencies. The truce in U.S.-China trade warring and the near ruling out of a no-deal Brexit scenario on October 31, along with the U.S. lifting of sanctions against Turkey, have been positives for investor sentiment. A one-year low at 1.3016, seen back in July, provides a downside focal point for USD-CAD.

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