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By XE Market Analysis September 16, 2019 4:13 am
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    XE Market Analysis: Europe - Sep 16, 2019

    A stab of risk-off positioning drove the Yen higher in early trade, although follow-through has been limited. News that a drone attack on Saudi oil facilities have shut down 5% of global supply impacted at the open of trading. Some solace was taken on the view that the Saudi will be able to maintain exports for a time by tapping into crude stockpiles while work commences in restoring production, although oil prices, while down from the highs, are still showing a near 10% gain on the day, and there are concerns that U.S.-Iranian tensions could ratchet up given the suspicions of the former about the possible involvement of the latter. Data out of China were also worrisome, showing industrial production falling growth to a 17-and-a-half year low rate of 4.4% y/y in August, down from 4.8% y/y in the month prior and the lowest rate since February 2002. The median forecast had been for an increase to 5.2%. Retail sales and investment data out of China also saw weakness. USD-JPY printed a six-day low at 107.48 before settling in the upper 107.00s after some early chop. Yen crosses saw a similar price action. Most developing-nation currencies weakened, as did the Australian and New Zealand Dollars, though the Canadian Dollar lifted due to the rise in oil prices, being a positive for Canada's terms of trade. Market participants will be looking for how long will crude supply will be affected by the damaged facilities in Saudi Arabia and what the incident means on the geopolitical front. The Fed is also set to execute a second rate cut this Wednesday. Just a 25 bp is expected now, rather than a 50 bp move, given the recent cooling in U.S.-China trade tensions.

    [EUR, USD]
    EUR-USD has started the new week without directional flare, so far holding in a narrow range below the three-week high seen last week at 1.1109. The pair is fractionally up on week-ago levels and is near net unchanged from month-ago levels, and holding a near 3.5% loss on the year-to-date. Last week's ECB promise of open-ended asset purchase, which initially drove the Euro to a 1.0926 low, evidently wasn't sufficient to sustain declines with the Fed on track to cut rates a second time next Wednesday, even though aggressive action isn't likely considering the strength in the U.S. economy and with the U.S.-China relations on trade having improved. Overall, EUR-USD looks likely to maintain a non-directional bias.

    [USD, JPY]
    The Yen briefly rose in early trading amid a bout of risk-off positioning,lthough follow-through has been limited. News that a drone attack on Saudi oil facilities have shut down 5% of global supply impacted at the open of trading. Some solace was taken on the view that the Saudi will be able to maintain exports for a time by tapping into crude stockpiles while work commences in restoring production, although oil prices, while down from the highs, are still showing a near 10% gain on the day, and there are concerns that U.S.-Iranian tensions are ratcheting up given the accusations of the former about that the latter was involved. Data out of China were also worrisome, showing industrial production falling growth to a 17-and-a-half year low rate of 4.4% y/y in August, down from 4.8% y/y in the month prior and the lowest rate since February 2002. The median forecast had been for an increase to 5.2%. Retail sales and investment data out of China also saw weakness. USD-JPY printed a six-day low at 107.48 before settling in the upper 107.00s after some early chop. Yen crosses saw a similar price action. After three consecutive gains, USD-JPY could now be in for a down leg, especially if the Mideast geopolitical situation flares up.

    [GBP, USD]
    The Pound has come under moderate pressure today, correcting some after rallying over the last several weeks with the UK Parliament now having outlawed a no-deal Brexit on October 31. A Halloween Brexit with a deal is still possible, but looking unlikely at this stage, with a further pushing back of the Brexit deadline, to January 31 next year, looking more likely. A general election is coming, which will be the final battle in the UK's civil warring on Brexit. Sterling, while up over 4% from the early-September major-trend low versus the Dollar, isn't likely to see further sustained gains, with markets still likely to demand a Brexit discount as the possibility of a no-deal exit still remains, depending on who triumphs at the election (a coalition government formed by the Conservative and Brexit parties, which is a possibility even if it doesn't as yet look like a probability, would lead to a no-deal exit from the UK becoming a reality).

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a six-week high last Tuesday at 1.0968, which extended the rebound from the 26-month low at 1.0811. The pickup in risk appetite in global markets, and reduced risk for a no-deal Brexit, has fostered 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 took a short sharp dip to a 1.3210 low before recouping back above 1.3250. News of the drone attack on Saudi oil facilities was taken as buying cue by markets in early Asia, though the trade ran out of steam as markets factor in the ability for the Kingdom to tap into stockpiled reserves to maintain exports for a period while work commences on restoring damaged facilities. USD-CAD has resistance at 1.3287-90.

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