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By XE Market Analysis September 17, 2019 3:44 am
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    XE Market Analysis: Europe - Sep 17, 2019

    The Australian Dollar ebbed to an 11-day low versus the U.S. Dollar, at 0.6833. Several factors weighed on the antipodean currency. First, the RBA minutes from the September policy meeting showed that the central bank remains disposed to further easing, and second, Australian consumer sentiment fell to a two-year low. At the same time, China's PBoC also took its foot off the stimulus pedal a little, refraining from rolling over nearly CNY 300 bln in money market instruments today. Elsewhere, the Dollar has been in a narrow-ranged consolidation after rallying yesterday on safe haven demand as markets reacted to weekend news of the attacks on Saudi oil facilities. EUR-USD has settled near the 1.1000 level after yesterday dropping from levels above 1.1050. Cable has steadied near the 1.2420 mark after yesterday rotating from levels above 1.2500. Both the Canadian Dollar and Norwegian Crown have corrected a little after both rallied quite strongly as a consequence of the sharp spike in oil prices yesterday. Crude prices have remained elevated, although the U.S. and Japan, among other nations, have pledged to release strategic crude supplies if needed to help stabilize prices.

    [EUR, USD]
    EUR-USD has settled near the 1.1000 level after yesterday dropping from levels above 1.1050. The decline was driven by safe haven demand for the Dollar as markets reacted to weekend news of the attack on Saudi oil facilities. The downward shift reinvigorates what has been a moderate downtrend, the latest leg of which has been in play since the late June highs above 1.1400. The favourable yield carry of the dollar -- 1.8% for the 10-year U.S. T-note vs nearly -0.5% for the benchmark Bund and -0.15% for the 10-year JGB -- along with the fact that the Treasury market stands as the biggest, most liquid risk-free asset market in the world, means that the U.S. currency is likely to remain underpinned, much to President Trump's chagrin, no doubt. This view assumes that the Fed doesn't abandon prudent fiat-currency management and resists pressure from the executive for gung-ho on monetary easing. This view also assumes that the Fed hikes by no more than 25 bp following its FOMC meeting this week, and continues to frame easing as a mid-cycle adjustment rather than the beginnings of a committed cycle of easing. This will be juxtaposed to last week's ECB promise of open-ended asset purchases. EUR-USD has resistance at 1.3035-38, and support at 1.0975.

    [USD, JPY]
    USD-JPY clocked a seven-week high at 108.37, which the pair now amid its fourth consecutive week of ascent. The gains have mostly reflected an unwinding in the yen's safe haven premium as both the U.S. and China show signs of wanting to come to some sort of resolution on the trade front. Broader demand for dollars has also been in the mix. USD-JPY has support at 107.67-70, and resistance at 108.65-67.

    [GBP, USD]
    Sterling has ebbed against the Dollar over the last day, though overall as been seeing little independently driven directional bias. On the Brexit front, the UK's Supreme Court will on Thursday hear the government's appeal on the ruling from Scotland's highest court that the government's suspending of parliament was illegal. Most likely the Supreme Court will agree with the recent court rulings seen in England and Northern Ireland, that the matter was "non-justiciable" -- being political rather than a legal matter. This would leave Parliament closed until the week of October 14, ahead of the EU leader' summit on October 17. Prime Minister Johnson yesterday met with European Commission President Juncker and the EU's lead Brexit negotiator Barnier. Johnson used the meeting as an opportunity to state; 1, he will not be asking for an extension to Brexit beyond October 31 (tacitly a no-deal threat, though he would break the law if he did so given the legislation passed in Parliament last week); and, 2, he remains committed to finding alternative arrangements for the Irish border that would both maintain the Good Friday Peace Agreement (an essential part of which is a free flowing border) and do away with the need for the Irish backstop. Regarding the latter point, the EU stated that they have still not received any fresh ideas, although to be fair to Johnson, he has been starting to sound like he genuinely wants to find a deal so he can (legally) achieve his "do or die" pledge to take the UK out of the EU on October 31. The EU is highly unlikely to budge, however. The only option for Johnson would likely be if he accepted a Northern Ireland only customs arrangement, which is a possibility as the support of the DUP Party has now become irrelevant.

    [USD, CHF]
    EUR-CHF has remained buoyant after printing a six-week high last Friday at 1.0974, 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 to the mid 1.3200s. 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 oil prices steadied. Saudi Arabia said that it will tap into stockpiled crude to maintain exports for a period, while the U.S. and Japan have said they will release oil reserves if necessary. Nonetheless, the geopolitical situation in the Mideast has deteriorated, especially with the U.S. openly considering taking military action against Iran, which it suspects of being involved. USD-CAD has resistance at 1.3287-90.

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