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By XE Market Analysis August 21, 2019 7:34 am
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    XE Market Analysis: North America - Aug 21, 2019

    The Dollar has traded mixed, holding near net steady versus the Euro, firmer against the Yen, Swiss Franc and Pound, and lower against the Australian and Canadian Dollars. The Yen traded moderately softer as stock markets in Europe and S&P 500 futures lifted into expected signalling of fresh monetary stimulus by major central banks at their upcoming jamboree at the Jackson Hole Symposium. The biggest mover was AUD-JPY, which lifted by nearly 0.5% in reaching a high at 72.32, while USD-JPY printed a peak at 106.60, which is about 30 pips on Monday's closing level, before settling slightly lower to leave yesterday's peak at 106.69 untroubled. Elsewhere, EUR-USD settled to a narrow oscillation of the 1.1100 level after recouping from yesterday's three-day low at 1.1065. The pair is at near net-unchanged levels on the week at these levels. Italian politics remains in the spotlight, the latest being that an alternate coalition government is in the works, which would prevent a snap election (which is seen a positive by markets). AUD-USD rose above 0.6790s, aided higher by AUD-JPY's aforementioned advance and despite iron ore prices tumbling to a 10-week low following a profit warning from BHP (Iron ore being a principal export of Australia). Sterling returned to underperforming ways, and was showing a decline of 0.4% against both the Dollar and Euro heading into the New York interbank open. Cable posted a low at 1.2121, extending a retreat from the high seen yesterday at 1.2180. USD-CAD edged out a two-day low at 1.3293.

    [EUR, USD]
    EUR-USD has returned to a narrow oscillation of the 1.1100 level after recouping from yesterday's three-day low at 1.1065. The pair is at near net-unchanged levels on the week at these levels. 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, alongside 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 in crisis.

    [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 yesterday matched the two-month high that was seen on August 7 at 1.3345. The calming in global markets after last week's bout of high volatility has taken the perceived pressure off the Fed for aggressive easing, which in turn has given the U.S. Dollar some buoyancy. USD-CAD support comes in at 1.3270-73.

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