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By XE Market Analysis October 25, 2019 4:15 am
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    XE Market Analysis: Europe - Oct 25, 2019

    The dollar has been holding steady against most other currencies to far today, losing a little ground to the Australian and Canadian dollars, but remaining comfortably within respective ranges from yesterday. EUR-USD has been holding steady just above 1.1100, and USD-JPY has been amid a narrow chop around the 108.50-60 area. The pound has found its feet after tipping about 0.5% lower after the London interbank close yesterday on news that PM Johnson called an election on December 12. Cable has settled in the mid 1.2800s, above the eight-day low that was printed at 1.2788. Regarding Brexit, the leader of the opposition, Corbyn, has stated that the Labour Party will only support an election when a no-deal Brexit has been removed from the table. This implies further legislation would be needed, as the existing Benn bill only rules out a no-deal on October 31. The EU, meanwhile, has also yet to give its terms for a Brexit extension, and will reportedly delay it from today to Monday or Tuesday next week given concerns that Corbyn will refuse Johnson's general election, with the latter having threatened to pull the Brexit deal. Corbyn has stated that his party will support an election provided a no-deal scenario can be ruled out. Elsewhere, senior U.S. and Chinese trade officials will discuss plans today for China to buy more U.S. farm products in return for the U.S. cancelling some of the planned and existing U.S. tariffs on Chinese imports, according to sources cited by Reuters.

    [EUR, USD]
    EUR-USD has been holding steady just above 1.1100. At these levels the pairing is showing a 0.6% decline versus week-ago levels, and a rise of 1.7% from month-ago levels. The rise over the month reflects the pricing out of no-deal Brexit risk on October 31, which had been posing a threat to the Eurozone economy. The Brexit saga is far from over, however, and there remains a theoretical risk of a no-deal scenario, although now further down the track. ECB's Draghi, at his final policy meeting yesterday, left both policy and guidance unchanged. Incoming President, Christine Lagarde, is expected to bring a more dovish tilt to the central bank. The Fed meets next week, where a 25 bps has been fully discounted, and where the focus will be on guidance given the evident slowing in the U.S. economy. Taking a step back, 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 been amid a narrow chop around the 108.50-60 area, remaining buoyant with the yen underperforming most other currencies recently amid a backdrop of cautious risk taking in global markets. The pair remains a short distance from the 12-week high seen last week at 108.94. The BoJ policy meeting on October 30-31 has come into scope. Reuters cited sources saying that policymakers are leaning towards keeping monetary policy unchanged given the apparent truce in U.S.-China trade warring and with financial markets steady. The BoJ yesterday warned today about riskier lending practices of financial firms as a consequence of super accommodative monetary conditions. Regarding U.S. and Chinese trade, officials will discuss plans today for China to buy more U.S. farm products in return for the U.S. cancelling some of the planned and existing U.S. tariffs on Chinese imports, according to sources cited by Reuters. Data this week showed Japanese factory activity slowing at the quickest rate in more than three years in October, hurt by slowing global demand and the associated trade frictions.

    [GBP, USD]
    The pound has found its feet after tipping about 0.5% lower after the London interbank close yesterday on news that PM Johnson called an election on December 12. Cable has settled in the mid 1.2800s, above the eight-day low that was printed at 1.2788. Regarding Brexit, the leader of the opposition, Corbyn, has stated that the Labour Party will only support an election when a no-deal Brexit has been removed from the table. This implies further legislation would be needed, as the existing Benn bill only rules out a no-deal on October 31. The EU, meanwhile, has also yet to give its terms for a Brexit extension, and will reportedly delay it from today to Monday or Tuesday next week given concerns that Corbyn will refuse Johnson's general election, with the latter having threatened to pull the Brexit deal. Corbyn has stated that his party will support an election provided a no-deal scenario can be ruled out.

    [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 has remained heavy since printing a fresh three-month low at 1.3053 yesterday. The pair has fallen by over 2% in 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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