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By XE Market Analysis August 12, 2019 7:20 am
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    XE Market Analysis: North America - Aug 12, 2019

    A risk-off theme propelled the Yen higher while the likes of the China-proxy Australian Dollar, and many developing-world currencies, underperformed. The Breixt-afflicted Pound also posted fresh major-trend lows during a notably thin Asian session (amid holidays in Japan and Singapore) but managed to rebound some. Cable lifted back above 1.2050 after printing a 31-month low at 1.2015. The UK currency also rebounded from respective 33- and 10-year lows versus the Yen and Euro. The London Times reported that pro-EU members of parliament are scheming to force the UK government to delay Brexit as a means to avoid a no-deal Brexit. Johnson is reportedly to meet with Irish prime minister in the coming days, too, though it would be highly unlikely that the two would make any substantive progress with regard the Irish backstop. USD-JPY drifted to a fresh seven-month low, at 105.15, and a 28-month low against the Euro, reflecting a rise in the Japanese currency's safe-haven premium as stock markets in Europe and S&P 500 futures sputtered. Concerns of a protracted trade war between the U.S. and China are taking a stronger grip, while the risk of a no-deal Brexit was brought into sharper focus in global markets by UK data on Friday showing an unexpected contraction in Q2 GDP. AUD-USD and AUD-JPY traded lower by over 0.5% and 1%, respectively, though both remained above the 10-year lows that each saw last week. EUR-USD continued to gravitate around 1.1200, which has been the case for a week now. The PBoC set the midpoint of the yuan fix at 7.0211, a new 10-year-plus low, after 7.0136 on Friday. The IMF said on Friday that it considers recent Yuan weakness to be in line with fundamentals, endorsing the PBoC claim.

    [EUR, USD]
    EUR-USD has continued to gravitate around 1.1200, below the three-week high seen last week at 1.1249, which was the product of rebound ascent from the 27-month seen the week before 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 rotate lower 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 palpable risk of a disorderly, no-deal Brexit scenario in less than three months, should keep a lid on EUR-USD's upside potential. Italy's coalition government looks to be in crisis, too. Resistance comes in at 1.1250, and support at 1.1160-65.

    [USD, JPY]
    USD-JPY has drifted to a fresh seven-month low, at 105.15, and respective 28- and 33-month lows against the Euro and Sterling. The Yen has also advanced against most other currencies, reflecting a risk in the currency's safe-haven premium as stock markets in Europe and S&P 500 futures sputtered lower during the London morning session. Concerns of a protracted trade war between the U.S. and China are taking grip in market commentaries, while the risk of a no-deal Brexit was brought into sharper focus in global markets by UK data on Friday showing an unexpected contraction in Q2 GDP. While the recent marked declines in sovereign debt yields (U.S. Treasuries, Bunds etc) have had the effect of lifting the equity risk premium, which had been generating some demand-at-lows in stock markets, this only holds out if investors are confident that a recession will be avoided. For now, the pendulum has swung towards pessimism. This should in turn keep the Yen underpinned. USD-JPY's early January flash-crash low at 104.81 provides a downside waypoint. 2018 lows are at 104.63-64. The Wednesday release of retail sales and industrial production data out of China will be a major focal point for markets as they will provide a fresh gauge on the impact of U.S. tariffs on the Chinese economy.

    [GBP, USD]
    The Pound has by recent standards been trading with uncharacteristic steadiness so far this week, though the scope for a sustained rebound is limited as investors and currency overlay managers continue to demand a hefty discount in the UK currency due to the palpable no-deal Brexit risk. There is ensuing debate about if and how parliament, which in the current mix is against a no-deal scenario, could constitutionally stop a no deal exit (which, apparently, could potentially involve the Queen, depending on the circumstances). There is also speculation that Prime Minister Boris Johnson is bluffing with regard to no deal, which is how senior sources at the European Commission, cited last week by British tabloid The Sun, are reading it. On the other hand, EU negotiators stated yesterday 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 rejected this assertion, calling for the EU "to change its stance." There is also a view that parliament may now effectively be powerless to stop a no-deal Brexit -- the conjecture being (which is by no means certain) that Johnson would have the power to dictate the timing of a general election even in the event his government was pulled down in a confidence vote.

    [USD, CHF]
    EUR-CHF has edged out a one-week low at 1-0886 today, returning focus to the 25-month low seen last Monday week 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 in the lower 1.3200s in recent sessions after correcting from a seven-week high seen last Wednesday at 1.3345. The Canadian Dollar, like its Dollar bloc brethren, rebounded from lows concomitantly with a recouperation in global stock markets after China's anxiety-mollifying trade data last Thursday, which showed an unexpected rise in Chinese exports in July. This has helped put a floor under crude prices, which the Loonie correlates with, after recent sharp declines. Although up from lows, however, front-month WTI prices are still showing about a 10% decline from month-ago levels, so we don't advise a bullish take on the Canadian currency. USD-CAD support comes in at 1.3207-10.

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