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By XE Market Analysis September 26, 2019 4:00 am
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    XE Market Analysis: Europe - Sep 26, 2019

    The dollar has given some of the gains seen yesterday, tracking the U.S. 10-year Treasury yield, which has deflated by a few basis points after rising notably yesterday. The narrow trade-weighted USD index (DXY) has ebbed back to around 98.95, off from yesterday's two-week peak at 99.05. EUR-USD concurrently lifted to around 1.0960-64 from its lows around 1.0937-40, and USD-JPY deflated to around 107.60 from 107.88. Yesterday was all about a risk-back-on vibe. The smoking gun of the evidence in the telephone transcript presented by the White House in response to the whistleblower allegations about President Trump's dealings with Ukraine weren't so smoky after all (although not fumeless, and the Democrats impeachment inquiry will continue), and the mood music coming from U.S.-China and U.S.-Japan trade negotiations become more upbeat. This left markets focusing on fundamentals, particularly the prevailing bullish Wall Street narrative -- S&P 500 trading below long-term average in price/earnings terms and dividend yields being higher than the 10-year T-note yield. The S&P 500 is now back to within 50 points of its all-time highs. The mood in Asia has been less bullishly robust. The fallout from trade warring has thus far been been greater on the Chinese economy and some other Asia economies than it has been on the U.S. economy. Overall, the dollar looks likely to retain an underlying upward bias against most currencies.

    [EUR, USD]
    EUR-USD has lifted to around 1.0960-64 from the two-week low seen at 1.0937 yesterday.The low yesterday notched up another lower low in what can be described as the latest down phase of an overall bear trend. We expect this trend will remain in play. The pair's recent major-trend low is at 1.0926.

    [USD, JPY]
    USD-JPY has deflated to around 107.60 from 107.88. Yesterday was all about a risk-back-on vibe. The smoking gun of the evidence in the telephone transcript presented by the White House in response to the whistleblower allegations about President Trump's dealings with Ukraine weren't so smoky after all (although not fumeless, and the Democrats impeachment inquiry will continue), and the mood music coming from U.S.-China and U.S.-Japan trade negotiations become more upbeat. Oil prices have also more than given back the gains sparked by news of the attack on Saudi crude facilities, and the Trump adminstration has made clear it is looking for a diplomatic solution to the tensions with Iran. This left markets focusing on fundamentals, particularly the prevailing bullish Wall Street narrative -- S&P 500 trading below long-term average in price/earnings terms and dividend yields being higher than the 10-year T-note yield. The S&P 500 is now back to within 50 points of its all-time highs. The mood in Asia has been less bullishly robust. The fallout from trade warring has thus far been been greater on the Chinese economy and some other Asia economies than it has been on the U.S. economy. Overall, the dollar looks likely to retain an underlying upward bias against most currencies, including the yen.

    [GBP, USD]
    Sterling yesterday made a return to the biggest loser column thanks to a 1% decline to the dollar, which is the strongest performer, and a 0.7% and 0.5% losses to the euro and yen, respectively. Cable posted a two-week low at 1.2337, which extended to correction from the two-and-a-half-month high seen last Friday at 1.2582. The breach of Monday's low at 1.2413 racked up another lower low in what can be viewed as being a nascent bear phase. There didn't appear to be a specific catalyst behind the pound's descent. Big political developments and big debate and big news noise, but not a lot that would appear to have any bearing on how the unresolved Brexit process will unfold. The UK Parliament reopened following Tuesday's historic ruling of the UK's Supreme Court that the government's decision to suspend it for five weeks it was unlawful. The debate in the House of Commons was tumultuous. Prime Minister Johnson accepted the Supreme Court's ruling while stating they disagree with it and politicising it by a full throttled hamming-up the people vs parliament narrative, looking to roil up the pro-Brexit base ahead of an upcoming election. The opposition is likely to stay with its tactical refrain from agreeing to an election, however, until the avoidance of no-deal Brexit on October 31 has been assured. If Johnson fails to secure a deal with the EU, the new law that will extend Brexit to January 31 will kick in on October 19. A general election is looming, in November or December, which (hopefully) will mark the beginning of Brexit finally being resolved.

    [USD, CHF]
    EUR-CHF has find a toehold after five consecutive days of decline, which culminated in a three-week high being printed yesterday at 1.0832. The cross has since recouped to levels above 1.0860. The declines over the last week follow the SNB's quarterly policy announcement last week, which will be frustrating to Swiss policymakers given their chronic concerns of the franc's chronic state of overvalue-ment (which regularly tops the Economist magazine's Big Mac purchasing parity comparison of currencies). The 26-month seen in early September at 1.0811 has so far remained untroubled, but still looks vulnerable.

    [USD, CAD]
    USD-CAD has continued to gravitate around the 1.3250 level, with the pair lacking clear directional impulse, which is been much the case for over a week now. The recent pronounced drop in U.S. Treasury yields (down nearly 25 bp from September 13) hasn't been as bearish a force as it might have been with the Canadian dollar having lost support from oil prices, which have now more than given back the price gains seen in the immediate wake of the attack on Saudi crude production and distribution facilities. The pledged release of strategic crude reserves in the U.S., China and Japan, along with a quicker than expected path to the resumption of crude production in the afflicted sites in Saudi Arabia have brought crude pries down.

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