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By XE Market Analysis September 5, 2019 4:27 am
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    XE Market Analysis: Europe - Sep 05, 2019

    The Australian Dollar posted a one-month high at 0.6825 against the U.S. buck, benefiting from a backdrop of rallying stock markets in Asia. News that the U.S. and China announced that they would resume trade negotiations early next month sparked a fresh round of risk-on positioning, which helped lift both the Aussie and New Zealand Dollars, both being proxies of China. AUD-USD, which recently traded at 10-year lows, has posted its biggest daily back-to-back gain since January 3-4 this year. Elsewhere, the narrow trade-weighted USD index printed a one-week low at 98.38. The low in the index mostly reflected a strong gain in EUR-USD over the last couple of days, with the common currency benefiting both from news that Italy's Conte is forming a new government and by the progress opposition and Tory rebel member of parliament in the UK have had in blocking a no-deal Brexit on October 31. Regarding Brexit, the anti no-deal bill passed in the House of Commons and is now in the House of Lords (the upper house in the UK's parliamentary system), where it is being bogged down by pro-Brexit peers, who have tabled over 100 amendments to try and filibuster the motion and stop the bill going ahead. Despite this, most political pundits seem to be expecting that the bill will pass in the Lords and become law. Prime Minister Johnson, who's position is now politically untenable, submitted a motion calling for an early election, but, in another defeat, failed to gain the necessary two thirds support in the House of Commons. The opposition are insisting that the no-deal bill is first passed into law. The Pound posted an eight-day high against the Dollar at 1.2259 -- a rise of over 2.5% from the major-trend low seen on Tuesday.

    [EUR, USD]
    EUR-USD has rallied over the last couple of days, with the common currency benefiting both from news that Italy's Conte is forming a new government and by the progress opposition and Tory rebel member of parliament in the UK have had in blocking a no-deal Brexit on October 31. The pair pegged a four-session high at 1.1039, extending the rebound from the 28-month low that was seen earlier in the week at 1.0926. We don't advice following the pair higher, in part as tomorrow's August U.S. payrolls report is likely to show resilience in the labour market (we expect a 165k August nonfarm payroll rise that about matches the 164k July increase, with the jobless rate ticking down to 3.6% from 3.7%, alongside gains of 0.3% for both hours-worked and hourly earnings). The ECB is also on course to turn the monetary stimulus spigot at its policy meeting next Thursday. EUR-USD has resistance at 1.1050-51, and support at 1.0998-1.1000.

    [USD, JPY]
    The Yen has continued to see its safe haven premium abate, which has seen USD-JPY float to a three-week high at 106.75, and AUD-JPY and EUR-JPY ascend into respective three- and one-week high terrain. This comes with global stock markets rallying on news that the U.S. and China announced that they would resume trade negotiations early next month. An ebb in the risk for a no-deal Brexit following political developments in the UK has also been a tonic in the mix of global investor sentiment. Things could change in a flash, of course, and there remains concerns that the U.S. and major European economies are heading toward recession, and the Chinese economy is amid structural downshift in its potential growth profile. For now, given the thawing in U.S.-China relations, and given our expectation for tomorrow's August U.S. payrolls report to show resilience in the labour market, we expect USD-JPY to remain directionally biased to the upside. Support comes in at 106.15-17. Regarding the jobs report, we expect a 165k August nonfarm payroll rise that about matches the 164k July increase, with the jobless rate ticking down to 3.6% from 3.7%, alongside gains of 0.3% for both hours-worked and hourly earnings. Initial claims remained firm in August, while most consumer confidence eased to still firm levels. Most producer sentiment measures rebounded slightly, but vehicle assemblies could moderate from an elevated June-July pace.

    [GBP, USD]
    The Pound has posted an eight-day high against the Dollar at 1.2259 -- a rise of over 2.5% from the major-trend low seen on Tuesday. Political developments in the UK have inspired the rotation higher in Sterling. The anti no-deal bill passed in the House of Commons last night, and is now in the House of Lords (the upper house in the UK's parliamentary system), where it is being bogged down by pro-Brexit peers, who have tabled over 100 amendments to try and filibuster the motion and stop the bill going ahead. Despite this, most political pundits seem to be expecting that the bill will pass in the Lords and become law. Prime Minister Johnson, who's position is now politically untenable, submitted a motion calling for an early election, but, in another defeat, failed to gain the necessary two thirds support in the House of Commons. The opposition are insisting that the no-deal bill is first passed into law, worried that Johnson might try and pull a fast one and rig an election after Brexit has been triggered on October 31.

    [USD, CHF]
    EUR-CHF printed a fresh 26-month low at 1.0811 yesterday, extending what has been a five-month bear trend, which has partly reflected demand for the Swiss Franc's as a safe haven, and partly the markets factoring in of looser ECB monetary policy (to be delivered at its governing council meeting next Thursday). We retain a bearish view of EUR-CHF.

    [USD, CAD]
    USD-CAD has posted to a 23-day low at 1.3206, extending the correction from the two-and-a-half month high that was printed on Tuesday at 1.3382. A backdrop of rekindled risk appetite in global stock and commodity markets, and particularly the 4.5% low-to-close rally in oil prices yesterday (front-month WTI futures), have stimulated demand for the Canadian Dollar. Resistance comes in at 1.3270-73.

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