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By XE Market Analysis August 13, 2019 7:22 am
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    XE Market Analysis: North America - Aug 13, 2019

    Currency markets have been in a somewhat directionally non-committal mood, with even a backdrop of sputtering global stock markets only managing to elicit modest safe-haven positioning. USD-JPY ebbed to within a pip of the seven-month low seen yesterday at 105.05. EUR-JPY and AUD-JPY also drifted lower, though both remained off their respective lows from yesterday. EUR-USD continued to oscillate around the 1.1200 level. USD-CAD printed a two-session high at 1.3264, while EUR-CHF logged a fresh 25-month low at 1.0852. Cable settled around the 1.2050-60 area, above the 31-month low that was seen yesterday at 1.2015. Sentiment remained skittish with the investors' worry list growing, including the disruptive pro-democracy protests in Hong Kong and a crash in Argentina's Peso following a poor performance of market-friendly Argentine President Macri in presidential primaries. Singapore also made a substantial cut to growth forecasts for 2019 (to between 0% and 1%, down from 1.5%-2.5%), citing Hong Kong situation, the U.S.-China and South Korea-Japan trade wars, and Brexit. The U.S. yield curve is now at its flattest since 2007, which is seen by many as portending recession, or at least a significant risk of recession. GS analysts also said that the U.S.-China trade war will have a bigger detrimental impact on the U.S. economy than it previously thought. A Reuters poll, meanwhile, found a new high in the probability being ascribed by analysts for there being a no-deal Brexit, which is now pegged at 35%, up from 30% in the previous survey. Amid all this, the PBoC set the Yuan at a new near 11-year low against the dollar at the day's midpoint fixing, at 7.0326, versus 7.0211 yesterday.

    [EUR, USD]
    EUR-USD is now in its seventh consecutive day orbiting 1.1200. This comes with both the Fed and ECB in easing mode, though we think the risk of a disorderly Brexit will ultimately tip the balance of the pairing to the downside given the potentially detrimental near-to-medium term economic impact that this could have on the Eurozone economy. Safe haven demand for U.S. Treasuries, the biggest and most liquid risk-free asset market in the world, may also prop the dollar up relative to the euro should further bouts of risk-averse positioning take hold, which at the current juncture looks more likely to be the case than not as the consequences of trade warring (U.S.-China, South Korea-Japan) become increasingly evident, and with the disruptive protests in Hong Kong also unsettling investors. Italy's coalition government is in crisis, too, which is an added weight on the bearish side of the EUR-USD scales. Resistance comes in at 1.1250, and support at 1.1160-65.

    [USD, JPY]
    USD-JPY has ebbed back into the lower 105.00s, returning focus on yesterday's seven-month low at 105.05. A breach of this level would rack today up as the fourth consecutive session of decline, which has been driven by safe-haven demand for the Japanese currency. Stock markets in Asia and in Europe have tumbled. There is plenty on the worry list, including disruptive pro-democracy protests in Hong Kong and a crash in Argentina's peso following a poor performance of market-friendly Argentine President Macri in presidential primaries. Singapore also made a substantial cut to its GDP forecast for 2019 (to between 0% and 1%, down from 1.5%-2.5%), citing the deteriorating global conditions, with the Hong Kong situation, along with the U.S.-China and South Korea-Japan trade wars, and Brexit, all getting a mention. The U.S. yield curve is now at its level since 2007, which is seen by many as portending recession, or at least a significant risk of recession. GS analysts also said that the U.S.-China trade war will have a bigger detrimental impact on the U.S. economy than it previously thought. A Reuters poll, meanwhile, found a new high in the probability being ascribed by analysts for there being a no-deal Brexit, which is now pegged at 35%, up from 30% in the previous survey. Should risk-off conditions take a strong grip, shorts of AUD-JPY and GBP-JPY are likely to be principal vehicles for speculative participants.

    [GBP, USD]
    The Pound has been trading relatively steadily so far today, after giving back more than half the rebound gains seen yesterday. Cable has settled to around the 1.2050-60 area. The 31-month low, seen yesterday in Asian trading, is at 1.2015. UK unemployment unexpectedly ticked higher to a 3.9% rate in June, slightly up on the 44-year low 3.8% that had been prevailing in recent months. The median forecast had been for an unchanged 3.8% outcome. The employment rate came in at 76.1%, which is the joint highest since comparable records began in 1971, and average household income came slightly above expectations, with the ex-bonus figure rising to an 11-year high rate of 3.9% y/y in the three months to June. The data didn't cast much impact on markets, and seems backward looking given all the focus on upcoming Brexit dramas. Regarding Brexit, there are intense debates and of backroom machinations at play, but little in the way of substantial developments. This will change when the UK parliament returns from its summer recess on September 2. A Reuters poll found a new high in the probability being ascribed by analysts for there being a no-deal Brexit, which is now pegged at 35%, up from 30% in the previous survey. A new poll also found that there may be enough support for Boris Johnson to win in an election, even without the help of the Brexit Party.

    [USD, CHF]
    EUR-CHF has printed a new 25-month low at 1-0865. 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 edged out a two-day high at 1.3252. Rekindled risk aversion in global markets has put the Canadian Dollar back onto a back foot, given the influence on oil prices. Although up from recent lows, front-month WTI prices are still showing about a 10% decline from month-ago levels. USD-CAD support comes in at 1.3207-10.

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