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By XE Market Analysis September 23, 2019 3:55 am
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    XE Market Analysis: Europe - Sep 23, 2019

    The Pound has come under modest pressure at the open of the London interbank market, with markets reacting to UK Prime Minister Johnson remarks on Brexit, that he did not wish "to elevate excessively the belief that there will be a New York breakthrough," referring to the meetings he has scheduled this week with various EU leaders and officials at the UN General Assembly in New York. Johnson added that there has still been "a great deal of progress" in discussions with the UN. Cable has dipped under Friday's low to a 1.2443 low, putting in some distance from the two-month peak seen on Friday at 1.2582. Sterling has also edged out some gains versus the Euro and Yen. Markets are also waiting on the judgement of the UK's Supreme Court (today or tomorrow) on Boris Johnson's controversial move to shut down Parliament for a five-week period, with the government having appealed a ruling by Scotland's highest court that the move was illegal. We suspect, although this is by no means a certainty, it 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. Elsewhere, currency markets have seen little directional impulse, with early-week conditions having been especially thin in Asia with Tokyo markets closed. EUR-USD has been lodged around 1.1010-20, consolidating declines seen on Friday from levels above 1.1050. USD-JPY ticked fractionally higher at the Tokyo before settling around the 107.70 mark. AUD-JPY saw a similar price action, though remains down by nearly 2% from week-ago levels, reflecting risk aversion due to ratcheting-up Mideast tensions.

    [EUR, USD]
    EUR-USD has been lodged around 1.1010-20, consolidating declines seen on Friday from levels above 1.1050. In the bigger picture, EUR-USD is amid a long-term 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 -- 1.76% (approx) 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 most liquid risk-free asset market in the world, suggests that the U.S. currency is likely to remain underpinned. EUR-USD has resistance at 1.1082-86.

    [USD, JPY]
    USD-JPY ticked fractionally higher at the Tokyo before settling around the 107.70 mark. AUD-JPY saw a similar price action, though remains down by nearly 2% from week-ago levels, reflecting risk aversion due to ratcheting-up Mideast tensions. With key policy decisions from the FOMC, ECB, BoE, BoJ, and PBoC out of the way, attention will turn back to U.S. trade warring, geopolitics and data.

    [GBP, USD]
    The Pound has come under modest pressure at the open of the London interbank market, with markets reacting to UK Prime Minister Johnson remarks on Brexit, that he did not wish "to elevate excessively the belief that there will be a New York breakthrough," referring to the meetings he has scheduled this week with various EU leaders and officials at the UN General Assembly in New York. Johnson added that there has still been "a great deal of progress" in discussions with the UN. Cable has dipped under Friday's low to a 1.2443 low, putting in some distance from the two-month peak seen on Friday at 1.2582. Sterling has also edged out some gains versus the Euro and Yen. Markets are also waiting on the judgement of the UK's Supreme Court (today or tomorrow) on Boris Johnson's controversial move to shut down Parliament for a five-week period, with the government having appealed a ruling by Scotland's highest court that the move was illegal. We suspect, although this is by no means a certainty, it 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.

    [USD, CHF]
    EUR-CHF has tracked lower since the SNB's policy announcement last week, extending today to 11-day lows near 1.0900. The 26-month seen in early September is at 1.0811. The SNB kept both interest rates and its language on the currency unchanged, as widely expected. The policy rate and deposit rates were both left at -0.75% and the central bank repeated that that Franc remains "highly valued", while highlighting fragile markets and affirming the commitment to intervene in currency markets if needed. There was one surprise in the statement as the SNB changed the way the negative deposit rate is calculated with a new exemption threshold, designed to reduce costs for institutions as the global low-rate environment has "become more entrenched and could persist for some time yet". This means that the SNB followed the ECB, which also took steps to limit the impact of negative rates on banks, and the step may also prepare the ground for a mid-meeting move in Switzerland should Brexit developments turn sour. The growth forecast for this year has already been cut to just 0.5-1.0% from around 1.5% expected at the time of the June policy review, with the SNB highlighting that global risks remain tilted to the downside.

    [USD, CAD]
    USD-CAD is now in a third day of consolidation, centred around 1.3250-1.3300. The fragility of the geopolitical situation in the Mideast brings directional risks to the Canadian Dollar, given the potential impact on oil prices, which should curtail USD-CAD's upside. Recent data out of Canada have been supportive of our ongoing projection for no change in rates this year, even as the Fed and ECB add stimulus, which should further limit upside.

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