Home > XE Currency Blog > XE Market Analysis: Europe - Sep 11, 2019

AD

XE Currency Blog

Topics6593 Posts6638
By XE Market Analysis September 11, 2019 3:36 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4539
    XE Market Analysis: Europe - Sep 11, 2019

    The Dollar has remained mostly in narrow ranges so far today against the other main currencies, with the exception being the Yen, which has continued to see its safe haven premium deflate. USD-JPY printed a fresh six-week peak, at 107.84, in what is now a third consecutive day of ascent, which in turn amid a third consecutive week of gains. AUD-JPY and GBP-JPY also posted respective six-week peaks, while EUR-JPY saw a fresh one-month high. News that the hawkish U.S. national security advisor, John Bolton, was fired by Trump has been something of a tonic for markets, maintaining buoyancy in global stock markets while sparking a 1%-pus dive in oil prices. Elsewhere, both EUR-USD and Cable remained in narrow ranges, underpinned following recent gains, but below recent highs. U.S. CPI and retail sales data are up later in the week, where we expect an ongoing benign price picture to be painted and a flat performance in the retail sector. While in-line data data wouldn't be a dollar-buying cue, neither should it prompt sell button reaction. Another focus is on tomorrow'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.

    [EUR, USD]
    EUR-USD has has settled around the 1.1050 mark so far this week after rising during the latter part of last week, which left an 12-day high at 1.1084. Last Friday's 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. U.S. CPI and retail sales data are up later in the week, where we expect an ongoing benign price picture to be painted and a flat performance in the retail sector. In-line data data won't be a dollar-buying cue, but neither a prompt to hit the sell button. A big focus will be on 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 low-conviction bullish view for the week ahead. Support comes in at 1.0998-1.1000.

    [USD, JPY]
    USD-JPY, AUD-JPY and other yen crosses continued to rise, with the former of these printing a fresh six-week peak, at 107.84, in what is now a third consecutive day of ascent, which in turn amid a third consecutive week of gains. News that the hawkish U.S. national security advisor, John Bolton, was fired by Trump (Bolton claims he resigned), has been something of a tonic for markets, maintaining buoyancy in global stock markets while sparking a 1%-pus dive in oil prices. Expectations for stimulus of the fiscal kind in Europe and China are also in the mix, offsetting a recent descaling in expectations for stimulus of the monetary kind by the Fed and ECB. Then there is the recent apparent de-thawing in U.S.-China relations, with face-to-faces set for early next month and with U.S. Treasury Secretary Mnuchin signalling earlier in the week "lots of progress on talks"." We have, of course, many times heard such upbeat rhetoric in the many previous rounds of the so-far fruitless trade discussions, though apparently the show of optimism is still enough to influence near-term sentiment. For now, the Yen looks likely to remain on a downwardly bias track.

    [GBP, USD]
    Sterling has settled since posting six-week highs against the dollar, euro and yen, among other currencies, earlier in the week. Overall, the Pound's price action is remaining buoyant, reflecting the sharply downsized odds for a no-deal Brexit scenario as soon as October 31 (with a no-deal at a later date contingent on how the upcoming UK election turns out). It is now legally forbidden for the UK to exit the EU on Halloween without a deal on divorcing terms, unless Parliament votes for it, which isn't going to happen. Some hardliner Brexiteers have urged PM Johnson to fulfil his "do or die" promise and become a "martyr" to the cause by moving to take the UK out of the EU on October 31, which could lead to his imprisonment for contempt, though much as speculation that the Queen would deny giving the royal ascent to the anti-no-deal legislation, such "hopes" won't likely come to anything. Boris looks to be trying to salvage a bad situation by showing some formerly lacking vigour in trying to persuade the EU to throw him some bones of concession on the Irish backstop, though none have come his way as yet -- and nor are any likely to come. EU officials, including the Irish PM on Tuesday, have been making clear that they are prepared and willing to continue the negotiation on the other side of a no-deal Brexit, not unreasonably anticipating that the reality of a no-deal circumstance would be much more painful for the UK (population about 65 mln) than for the EU-27 (population about 450 mln).

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a six-week high on Tuesday at 1.0968, 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 while concurrently 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 posted a new six-week low yesterday, at 1.3134, and has since remained heavy. The pairing has been downwardly spinning since last Friday's 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 or so, with the U.S. and China headed back to the negotiating table, has been a positive for the Canadian Dollar and other commodity currencies, too. Oil prices are up about 3% from week-ago levels (WTI futures), although dropping by over 1% on news that the hawkish U.S. national security advisor, John Bolton, has been chopped by President Trump. USD-CAD has resistance at 1.3234-35.

    Paste link in email or IM