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By XE Market Analysis August 19, 2019 7:31 am
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    XE Market Analysis: North America - Aug 19, 2019

    Moderate weakness in the Yen and the Pound has characterized early-week trading so far. The Yen nudged lower against the Dollar and Euro, tracking a rise in U.S. Treasury and Bund yields, which were accompanied by gains in Asian and European stock markets to complete a risk-back-on picture. USD-JPY printed a two-session high at 106.66, returning last week's two-week peak at 106.97 back into scope, and EUR-JPY also lifted into two-session terrain. The pound took a rotation lower during the London morning session. Cable posted a low at 1.2116, which is 56 pips down on the day's peak. Friday's low is at 1.2085. EUR-GBP printed a high at 0.9164, which put some added distance in from the three-week low seen on Friday at 0.9090. The dip in the UK currency, which comes after it posted a rare up week last week, was a reaction to a Sunday Times report detailing a leaked a government document assessing the impact of a no-deal Brexit on the UK economy, which warned of food and medicine shortages, among other potential horrors. Elsewhere, EUR-USD settled near 1.1100, consolidating gains seen on on reports that Germany will shift to deficit spending should the country enter recession.

    [EUR, USD]
    EUR-USD settled near 1.1100. The pair was lifted on Friday from levels around 1.1070 by reports that Germany will shift to deficit spending should the country enter recession. EUR-JPY has similarly consolidated Friday's Euro-driven lift; ditto for other Euro crosses. We have been advocating a bearish view of the pairing given the ECB's course to easing in September and the risk of a no-deal Brexit, which in the event would be detrimental to the Eurozone economy. And while any return of risk-off trading in global markets may initially elicit Dollar selling should it imply a more aggressive Fed easing path, such a backdrop may also increase demand for U.S. Treasuries, being the biggest and most liquid market for risk-free assets in the world, which in turn may buoy the Greenback.

    [USD, JPY]
    The Yen nudged lower against the dollar and euro, tracking a rise in U.S. Treasury and Bund yields, which has been accompanied by gains in Asian and European stock markets to complete a risk-back-on picture. USD-JPY printed a two-session high at 106.66, returning last week's two-week peak at 106.97 back into scope. EUR-JPY also lifted into two-session terrain, though GBP-JPY and AUD-JPY have fared less well, with the pound and Australian dollar trading generally softer. The Japanese currency saw bouts of high volatility last week, and will remain prone to directional impulsiveness should there be continued flip-flopping between risk-off and risk-back-on sentiment, which seems likely as hopes for more central bank stimulus vie with fears that a number of major economies are simultaneously heading for recession.

    [GBP, USD]
    The Pound took a rotation lower during the London morning session, led by a near 0.5% drop versus the Euro. Cable posted a low at 1.2116, which is 56 pips down on the day's peak. Friday's low is at 1.2085. EUR-GBP printed a high at 0.9164, which puts some distance in from the three-week low seen on Friday at 0.9090. The dip in the UK currency, which comes after it posted a rare up week last week, seemed to be a reaction to a Sunday Times report detailing a leaked a government document assessing the impact of a no-deal Brexit on the UK economy, which warned of food and medicine shortages, among other potential horrors. Market participants, meanwhile, are anticipating what promises to be a phase of high Brexit drama, which will commence when parliament returns from summer recess on September 3.

    [USD, CHF]
    EUR-CHF has settled around the 1.0850 mark after printing a fresh 25-mont low at 1.0835 last Thursday amid volatility in equity markets and recession-portending inversions of the U.S. and UK yield curves, which fed safe haven demand for the Swiss currency (despite the punishing -0.75% deposit rate). We retain a bearish view of the cross given ECB's course to additional monetary stimulus in September, and the risk of a disorderly no-deal Brexit on October 31.

    [USD, CAD]
    USD-CAD has settled in the mid 1.3200s after printing a nine-day high at 1.3339 last Thursday, which came amid sharp oil price declines and after above-forecast U.S. retail sales and productivity data. USD-CAD support comes in at 1.3207-10.

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