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By XE Market Analysis August 6, 2019 7:12 am
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    XE Market Analysis: North America - Aug 06, 2019

    The Dollar has continued to trade mixed, approaching the New York interbank open at near net unchanged levels versus the Euro, while trading firmer versus the Yen and lower against the Australian and New Zealand Dollars. EUR-USD settled near 1.1200 after printing 18-day high at 1.1249. The new high racks today up as the fourth consecutive session of ascent, building on the rebound from the 27-month seen last week at 1.1027. The Yen saw some whippy action, dropping sharply after posting fresh trend highs during the Tokyo AM session, before picking up fresh bids during the London AM session. The Japanese currency's highs were seen after U.S. Treasury Secretary Mnuchin officially stamped China as a currency manipulator, while the Yen's fallback was see after the PBoC produced a lower than expected USD-CNY fixing, at 6.9683, which followed a statement by the central bank governor, Yi Gang, that Beijing will stick to commitments "not to use exchange rates for competitive purposes." USD-JPY surged to a rebound high of 107.09 after earlier printing a seven-month low at 105.52, subsequently settling around 106.40. Sterling traded firmer, lifting Cable to a six-day high at 1.2209, shrinking the pair's year-to-date loss to about 4.5%. A positional theme has been at play, with the heavily shorted UK currency given a boost yesterday at the prompt of an above-forecast reading in the UK's July services PMI. The RBA left rates on hold, as was widely anticipated after back-to-back rate cuts in June and July, but Governor Lowe said that more easing measures could be needed. AUD-USD, which declined for 12 consecutive days through to yesterday, still managed to find a toehold, aided by a rebound in AUD-JPY and an "on the fact" type of reaction to the RBA's decision and guidance. The pair lifted to the upper 0.6700s.

    [EUR, USD]
    EUR-USD has settled near 1.1200 after printing 18-day high at 1.1249. The new high racks today up as the fourth consecutive session of ascent, 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 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 in1.1250, and support at 1.1160-65.

    [USD, JPY]
    The Yen has seen some whippy price action, dropping sharply after posting fresh trend highs during the Tokyo AM session, before picking up fresh bids during the London AM session. The Japanese currency's highs were seen after U.S. Treasury Secretary Mnuchin officially stamped China as a currency manipulator, while the Yen's fallback was see after the PBoC produced a lower than expected USD-CNY fixing, at 6.9683, which followed a statement by the central bank governor, Yi Gang, that Beijing will stick to commitments "not to use exchange rates for competitive purposes." USD-JPY surged to a rebound high of 107.09 after earlier printing a seven-month low at 105.52, subsequently settling around 106.40. EUR-JPY rallied to a 119.87 peak from a Tokyo low at 118.37. Stock markets in Asia remained under pressure, despite the PBoC's mollifications, with market narratives, and RBA Governor's post policy meeting statement today, reflecting a sharpening in concerns about a significant deepening in the trade conflict between the U.S. and China. USD-JPY's should remain to the downside, at least while risk-off conditions persist. The pair has resistance at 107.28-30.

    [GBP, USD]
    Sterling has traded firmer today, lifting Cable to a six-day high at 1.2209, which shrinks the pair's year-to-date loss to about 4.5%. A positional theme has been at play, with the heavily shorted UK currency given a boost yesterday at the prompt of an above-forecast reading in the UK's July services PMI. We see little scope for a sustained rebound in the currency at the current juncture, however, with markets demanding a hefty discount in sterling due to the no-deal Brexit risk. The latest on the Brexit front is EU negotiators stating that there was currently no basis for "meaningful discussions" and talks were back where they were three years ago, and that Boris Johnson's is intent on leaving without a deal. Downing Street has rejected this assertion, calling for the EU "to change its stance." This, along with the fact that parliament may now effectively be powerless to stop a no-deal Brexit (as Johnson would have the power to dictate the timing of a general election even in the event is government is pulled down in a confidence vote), has further fed the perceived risk of a no-deal, no-transition Brexit remains palpable.

    [USD, CHF]
    EUR-CHF has managed to find a toehold after dropping for fourth consecutive days through to yesterday, which produced a 25-month low at 1.0863. 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 settled around the 1.3200 mark, down from the six-week high seen last Friday at 1.3266. The backdrop of risk aversion in global markets, and an associated near 5% decline in oil prices from month-ago levels, should limit demand for the Canadian Dollar, although the U.S. currency itself has fallen out of favour as the ratchet higher in the U.S.-China trade war has increased the odds for more aggressive Fed easing. USD-CAD support comes in at 1.3180-83.

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