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By XE Market Analysis September 27, 2019 3:32 am
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    XE Market Analysis: Europe - Sep 27, 2019

    The euro has carved out fresh lows in an otherwise narrow ranging day among the main currencies so far, with dollar majors making it to the London interbank open showing no more than 0.2% net changes. EUR-USD edged out a fresh 28-month low at 1.0904 and EUR-JPY a three-week low at 117.44, before quickly recouping to levels around 117.60-65. EUR-CHF posted a two-day low but remained shy of the three-week low seen on Wednesday at 1.0832. EUR-GBP also saw a two-day low, while the pound held steady against the dollar and other currencies. USD-JPY tipped fractionally lower relative to New York closing levels before settling around 107.65-75, consolidating below the nine-day high seen yesterday at 107.95. Stock markets have continued an overall sputtering price action, albeit near record highs in the case of the S&P 500. On the trade front, Beijing said yesterday that China was willing to buy more U.S. products, and that negotiations would bring results if both sides "take more enthusiastic measures" to show goodwill and reduce "pessimistic language." This comes with the next round of face-to-face talks coming the week after next. Most likely there will be fresh disappointment, at least in terms of there being major progress. The U.S. economy and Wall Street are holding up well enough to keep any conciliatory feelings in President Trump repressed, and both sides look to be actively pursing a level of strategic disengagement from one another. The cost of the trade war showed up in a fall in industrial profits data out of China today. Also of note, key oil freight rates rose by near 20% in Asia today following the U.S. sanctioning of units of China's COSCO for alleged involvement in transporting Iranian crude.

    [EUR, USD]
    The euro has carved out fresh lows in an otherwise narrow ranging day among the main currencies so far, with dollar majors making it to the London interbank open showing no more than 0.2% net changes. EUR-USD edged out a fresh 28-month low at 1.0904 and EUR-JPY a three-week low at 117.44, before the cross quickly recouped to levels around 117.60-65. EUR-CHF posted a two-day low but remained shy of the three-week low seen on Wednesday at 1.0832. EUR-GBP also saw a two-day low. We expect EUR-USD bear trend, which has been in play since early 2018, got remain in play.

    [USD, JPY]
    USD-JPY tipped fractionally lower relative to New York closing levels before settling around 107.65-75, consolidating below the nine-day high seen yesterday at 107.95. Stock markets have continued an overall sputtering price action, albeit near record highs in the case of the S&P 500, and not sufficient bearish to have sparked safe-haven demand for the Japanese currency.

    [GBP, USD]
    The pound has come back under pressure after BoE's Saunders, who by reputation and track record is by no means a dove, said that a rate cut is now "quite plausible." This marks a shift in BoE guidance which has up until now remain committed to gradual tightening over the next three years on the proviso that the Brexit process is smooth and orderly. The BoE had already noted the detrimental effects of dragging-on Brexit uncertainty at its policy meeting earlier in the month. Cable dove to an 18-day low at 1.2277, extending the correction from the two-and-a-half-month high seen last Friday at 1.2582. On the UK political front, there is a peculiar situation, with the prime minister demanding an out-of-cycle general election and the opposition refusing it -- for now. The opposition is in part concerned that calling an election before October 19 would leave room for Johnson to trigger a no-deal Brexit before the election has taken place, while they are also wanting to force Johnson to break his "do or die" promise to deliver Brexit by October 31, thinking this will cost him votes at the election. The October-19 date is important as, if Johnson has failed to secure a deal with the EU by then, it is the date that would trigger the new law (the Benn bill) that will extend Brexit to January 31. A general election is coming, in November or December. This should mark the beginning of Brexit finally being resolved. All options remain open, ranging from a no-deal Brexit, to Brexit with a deal and multiyear transitory phase, to Brexit cancelled scenario. The pound is continuing to trade with about a 15% discount against levels prevailing ahead of June 2016 EU membership referendum.

    [USD, CHF]
    EUR-CHF has find a toehold after five consecutive days of decline, which culminated in a three-week high being printed on Wednesday at 1.0832. 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 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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