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By XE Market Analysis August 20, 2019 7:33 am
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    XE Market Analysis: North America - Aug 20, 2019

    The Dollar has headed into the New York interbank open on a mixed footing, showing gains versus the Pound while changing hands at near net unchanged levels against the Euro and Canadian Dollar, and showing losses against the Yen and Australian Dollar. Sterling's underperformance saw Cable print a three-day low at 1.2074, which was the product of a tweet from UK Prime Minister Johnson reminding us of his no-deal-and-I-mean-it Brexit threat. EUR-USD, meanwhile, posted a two-session low at 1.1071 before recouping moderately, retaining an overall heavy tone with the Euro attracting limited demand as the political situation in Italy re-emerges as a thorn in the side of the Eurozone (the coalition government there being on the verge of collapsing). USD-JPY took a southward phase in its overall orbit of the 106.50 level, which produced a two-session low at 106.29. The Australian dollar traded firmer, though paired a good portion of its gains during the London morning session. European and Chinese stock markets sputtered, which served to cap gains in the Aussie. AUD-USD receded to around 0.6775 after earlier printing a five-day high at 0.6795. The minutes to the early-August RBA policy meeting were released without surprises, affirming the central bank's wait-and-see easing bias while repeating the bank's view that the weaker currency will help exports and tourism. Overall investor sentiment is much less frayed that it was last week, with expectations for stimulus in major economies, along with Trump's partial climbdown in his trade war with China, assuaging recession fears -- at least for now.

    [EUR, USD]
    EUR-USD has retained a heavy tone, pushing below 1.1100 over the last day, which follows a one-week down phase from levels above 1.1200.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. The revival in global stock markets, which has come with a partial de-escalation in the U.S.-China trade war and expectations for stimulus in major global economies, has also taken the pressure off the Fed to ease aggressively (notwithstanding President Trump's call for 100 bp of rate cuts). The political situation in Italy, meanwhile, has returned to being a thorn in the side of the Eurozone, with the coalition government there on the verge of collapsing.

    [USD, JPY]
    USD-JPY has become anchored to an orbit about 20 pips either side of the 106.50 level. The dollar hasn't been much affected by U.S. President Trump's call for the Fed to cut rates by "at least 100 basis points". Fed's Rosengren pushed back against further rate cuts, saying that he is not convinced that slowing trade and global growth will significantly dent the economy. Overall investor sentiment is much less frayed that it was last week, with expectations for stimulus in major economies, along with Trump's partial climbdown in his trade war with China, assuaging recession fears. This in turn should for now keep USD-JPY and Yen crosses underpinned.

    [GBP, USD]
    Sterling got that sinking feeling again, with Cable printing a three-day low at 1.2083 and EUR-GBP lifting back above 0.9160. A Boris tweet appears to have provided a selling cue, as he said: "We are ready to work with our friends and partners to get a deal. But if you want a good deal for the UK, you must simultaneously get ready to come out without one." This doesn't tell us anything new, and we don't expect sustained selling, with the pound looking to have found an equilibrium of sorts over the last week following a protracted, multi-month period of underperformance. Market participants are anticipating what promises to be a phase of high Brexit drama, which will commence when parliament returns from summer recess on September 3, when the anti-no-deal and pro-no-deal Brexit parliamentary factions will do battle.

    [USD, CHF]
    EUR-CHF has settled around the 1.0850 mark after printing a fresh 25-month 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). While risk conditions have improved since last week, 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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