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By XE Market Analysis September 9, 2019 4:02 am
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    XE Market Analysis: Europe - Sep 09, 2019

    The Australian Dollar edged out fresh highs, posting six-week peak against both the U.S. Dollar and the Yen, amid a backdrop of rising stock markets in Asia. This came despite weak export data out of China, which followed Friday's underwhelming U.S. jobs headline, with markets preferring to focus on the expectation for more stimulus rather than the fear of slowing global growth (the meat of the jobs report out of the U.S. was actually pretty solid, too). AUD-USD 's high is at 0.6862. Elsewhere, EUR-USD and USD-JPY have been plying typically narrow ranges for early-week trading. The Pound has ebbed below Friday lows against both the dollar and euro. While the bill to stop a no-deal Brexit on October 31 has passed both houses, and is set to become law later today, Prime Minister Johnson, who saw, in another moment of political drama, one of his cabinet members quit over the weekend, is plotting ways to circumvent this. There will be a second vote in Parliament on the PM's desire to hold a snap election, though opposition parties have said they won't vote for it until there can be sure it happens after October 19, which is the date that would trigger a delay in Brexit until January 21. Parliament will close late in the week for five weeks, so things may go strangely quiet for a time as the clock runs down to October 31. What is certain is that there will be an election. Prime Minister Johnson and his party are a lame duck government following the last week's defections and expulsions. If the opposition get their way an election would be held once Brexit has been delayed, though they will need the support of the EU for this, which is less than certain at this stage.

    [EUR, USD]
    EUR-USD has has settled around the 1.1025-35 mark after rising for three consecutive days last week, which left an 11-day high at 1.1184. The August U.S. jobs report generated some chop, although the combination of a softer than anticipated job gain but otherwise strong report left markets without a strong sense of direction. Fed Chair Powell left the door open to a 25 bp easing at the mid-September FOMC, but refrained from sounding too dovish, saying that the Fed will "act as appropriate" to sustain the now record-long expansion. Powell also said outlook is a "favorable" one, with the economy "in a good place" and is continuing to perform well with no recession in the forecast. This should keep the Dollar in demand on dips for now. The focus is will fall on this Thursday's ECB meeting, which comes with updated staff projections and is widely expected to see the ECB introduce further easing measures. The event risk is that the package of measures will fall short of what markets have been pricing in, because without regulatory changes there is limited room for government bond purchases to be extended significantly. There could be a foray into other asset classes on the QE front but the overall amount is likely to be relatively small for now. We are expecting a small 10 bp cut in the deposit rate to -0.50%, with a tiered system to limit the impact of negative rates. As for EUR-USD, overall we retain a mid-to-low-conviction bearish vie. Support comes in at 1.0998-1.1000.

    [USD, JPY]
    The Yen has opened the new week on a steady-to-softer footing. AUD-JPY managed to eke out a fresh six-week high amid a backdrop of rising stock markets in Asia. This came despite weak export data out of China, which followed Friday's underwhelming U.S. jobs headline, with markets preferring to focus on the expectation for more stimulus rather than the fear of slowing global growth (and with the meat of the jobs report pretty solid, for the most part). For now, given the apparent thawing in U.S.-China relations (new face-to-face discussions have been scheduled for early October), we expect USD-JPY to remain directionally biased to the upside. Support comes in at 106.46.

    [GBP, USD]
    The Pound has ebbed below Friday lows against both the dollar and euro. While the bill to stop a no-deal Brexit on October 31 has passed both houses, and is set to become law later today, Prime Minister Johnson, who saw, in another moment of political drama, one of his cabinet members quit over the weekend, is plotting ways to circumvent this. There will be a second vote in Parliament on the PM's desire to hold a snap election, though opposition parties have said they won't vote for it until there can be sure it happens after October 19, which is the date that would trigger a delay in Brexit until January 21. Parliament will close late in the week for five weeks, so things may go strangely quiet for a time as the clock runs down to October 31. What is certain is that there will be an election. Prime Minister Johnson and his party are a lame duck government following the last week's defections and expulsions. If the opposition get their way an election would be held once Brexit has been delayed, though they will need the support of the EU for this, which is less than certain at this stage.

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a one-month high on Friday at 1.0931, which extended the rebound from the 26-month low seen on Tuesday at 1.0811. The pickup in risk appetite in global markets, and reduced risk for a no-deal Brexit, has taken the pressure off the ECB as it heads into next Thursday's government council meeting. This has helped float the Euro and at the same time fostering an unwinding in the Franc's safe haven premium (such as it is given the punishing -0.75% deposit rate in Switzerland).

    [USD, CAD]
    USD-CAD has remained heavy after printing a six-week low on Friday following the dual U.S. and Canadian jobs reports, with unexpected strength in the latter generating demand for the Canadian currency. The recouperation in risk appetite in global markets over the last week, with the U.S. and China headed back to the negotiating table, has been a positive for the Canadian Dollar, too, and other commodity currencies. Oil prices are up over 4% from week-ago levels (WTI futures). Resistance comes in at 1.3270-73.

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