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By XE Market Analysis August 5, 2019 7:10 am
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    XE Market Analysis: North America - Aug 05, 2019

    The Dollar has been trading mixed amid a risk-off backdrop, which has seen the safe-haven yen outperform and the commodity-correlating Dollar bloc currencies, along with a good many developing world currencies, underperform. China's Yuan fell to an 11-year low below the politically sensitive 7.0 to the dollar level, which the PBoC blamed on "trade protectionism," and which has the potential to mark the point at which the trade war goes from simmering to boiling. Bloomberg also reported that China asked state purchasers to half imports of American agricultural products. Amid the churn of sentiment-influencing factors are the pro-democracy protests in Hong Kong, which have disrupted flights and traffic, and the threat of a no-deal, disorderly Brexit scenario in less than three months, which has the potential to hit both the UK and EU-27 economies. USD-JPY hit a seven-month low at 105.78, and AUD-JPY dove by over 1% in making a fresh seven-month low at 71.40. EUR-USD carved out an 11-day high at 1.1166, rising for a third consecutive session and building on the rebound from the 27-month seen last week at 1.1027.

    [EUR, USD]
    EUR-USD carved out an 11-day high at 1.1166, rising for a third consecutive session and building on the rebound from the 27-month seen last week at 1.1027. President Trump's ratcheting up of his trade war with China last week has increased the odds for Fed easing given the potential for a detrimental impact on the U.S. economy. This in turn has seen the Dollar weaken against some currencies, including the Euro. The ECB is geared-up for a turn of the stimulus spigot in September, however, which along with the threat of a disorderly, no-deal Brexit scenario in less than three months, should curtail EUR-USD's upside potential. Resistance comes in at 1.1160-65.

    [USD, JPY]
    USD-JPY fell by over 0.6% in hitting a seven-month low at 105.78. AUD-JPY, a cross which is particularly sensitive to escalations in the U.S.-China trade war, dove by over 1% in making a fresh seven-month low at 71.40. The Yen also traded higher against most other currencies, underpinned be safe-haven demand amid a coursing risk aversion in global markets. China's yuan fell to an 11-year low below the politically sensitive 7.0 to the dollar level, which the PBoC blamed on "trade protectionism," and which has the potential to mark the point at which the trade war goes from simmering to boiling. Bloomberg also reported that China asked state purchasers to half imports of American agricultural product. Amid the churn of sentiment-influencing factors are the pro-democracy protests in Hong Kong, which have disrupted flights and traffic, and the threat of a no-deal, disorderly Brexit scenario in less than three months, which has the potential to hit both the UK and EU-27 economies. USD-JPY looks likely to remain under pressure, at least while risk-off conditions persist. The pair has resistance at 106.34-36.

    [GBP, USD]
    Cable has lifted back above 1.2150 after earlier posting a low at 1.2101. An above-forecast reading in the UK's July services PMI gave markets a short-covering cue. EUR-GBP has concurrently fallen by about 30 pips, and GBP-JPY has gained by nearly a big figure from the 33-month low seen in early London trading, at 128.17. The rebound from lows comes with speculative market participants running an extreme net short position in the pound, with the UK currency having last week racked up its 13th consecutive down week against the euro, and its 10th down week out of the last 13 weeks versus the dollar. We little scope for a sustained rebound at the current juncture, however ,with markets demanding a hefty discount in sterling due to the no-deal Brexit risk. Aside from the possibility of an October-31 overnight departure from the EU free trade area and its 40 trade agreements with 70 countries, there would also be a sharp increase in odds for the UK to devolve, as both Northern Ireland and Scotland would be at risk of voting themselves out of the union. The possibility of a general election hangs in the air, with new Prime Minister Boris Johnson needing a fresh mandate and a change in parliamentary arithmetic, with his minority government having a working majority of just one seat and hyper vulnerable in the event of a confidence motion. He would likely try to steal votes away from the Brexit Party, but would have the option of forming a coalition government with them if needed. If he is going to call an election, it would almost certainly be before Brexit-day on October 31.

    [USD, CHF]
    EUR-CHF is down for a fourth consecutive day, this time printing a fresh 25-month low at 1.0882. The ECB's course to additional monetary stimulus in September, and risk aversion in global markets following Trump's latest escalation in his trade war with China, have been weighing on the cross. The risk of a disorderly no-deal Brexit on October 31 is also in the mix, which is a bearish factor for the cross.

    [USD, CAD]
    USD-CAD has remained buoyant despite the U.S. currency trading softer versus a good many other currencies. The Canadian currency, likes its Dollar bloc brethren, the Australian and New Zealand Dollars, have underperformed amid risk aversion in global markets. A near 5% decline in oil prices from month-ago levels is a particular drag on the Canadian Dollar. We expect the six-week high USD-CAD saw last week at 1.3266, to be revisited. Support comes in at 1.3180-83.

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