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By XE Market Analysis August 22, 2019 7:06 am
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    XE Market Analysis: North America - Aug 22, 2019

    EUR-USD more than reversed gains seen following above-forecast Eurozone PMI data, dropping back to the 1.1175-80 area, leaving the post-data high at 1.1113, which matched the one-week peak seen earlier in the week. The common currency saw a similar U-turn lower against the yen, Swiss franc and other currencies. While the Eurozone's preliminary manufacturing PMI rose to 47.0 from 46.5, and the services reading to 53.4 from 53.2, the data still points to ongoing contraction in the manufacturing sector, which continues to face ongoing pressure on manufacturing exports from three fronts -- secondary effects from the U.S-Sino trade war, lingering direct conflict with the U.S. over trade and the risk of a no-deal Brexit. Some market narrative are also highlighting that German's services PMI hit a seven-month low, suggesting that weakness in manufacturing is starting to affect other areas of the economy, in addition to low expectations readings. The Yen took a rotation higher amid a backdrop of convulsing stock markets. Yesterday's FOMC minutes rekindled a risk-off vibe for the simple lack of a signal that the Fed's July rate cut was the start of an easing cycle. Fed Chair Powell will have opportunity to refine the central bank's guidance at his speech tomorrow at the Jackson Hole Symposium. USD-JPY printed a two-day low, at 106.25.

    [EUR, USD]
    EUR-USD more than reversed post Eurozone PMI gains, dropping back to the 1.1175-80 area, leaving the post-data high at 1.1113, which matched the one-week peak seen earlier in the week. The common currency saw a similar U-turn lower against the yen, Swiss franc and other currencies. While the Eurozone's preliminary manufacturing PMI rose to 47.0 from 46.5, and the services reading to 53.4 from 53.2, the data still points to ongoing contraction in the manufacturing sector, which continues to face ongoing pressure on manufacturing exports from three fronts -- secondary effects from the U.S-Sino trade war, lingering direct conflict with the U.S. over trade and the risk of a no-deal Brexit. Some market narrative are also highlighting that German's services PMI hit a seven-month low, suggesting that weakness in manufacturing is starting to affect other areas of the economy, in addition to low expectations readings. We continued to take a bearish view of EUR-USD, seeing that the ECB remains on a course to easing in September and given the risk of a no-deal Brexit, which in the event would be detrimental to the Eurozone economy. The political situation in Italy is also on the worry list.

    [USD, JPY]
    The Yen has been on the rise amid a backdrop of convulsing stock markets. Yesterday's FOMC minutes rekindled a risk-off vibe for the simple lack of a signal that the Fed's July rate cut was the start of an easing cycle. Fed Chair Powell will have opportunity to refine the central bank's guidance at his speech tomorrow at the Jackson Hole Symposium. USD-JPY printed a two-day low, at 106.25, as did EUR-JPY, at 117.73. The biggest mover, not surprisingly, has been AUD-JPY, a forex market barometer of shifting risk-appetite patterns in global markets. The cross was showing a 0.5% loss heading into the London interbank open, printing a one-week lows at 71.86.

    [GBP, USD]
    Cable rebounded from a two-day low at 1.2108 while EUR-GBP has retreated to intraday lows under 0.9130. News that UK opposition leader, Corbyn, has invited to leaders of other opposition parties to discuss tactics to stop a no-deal Brexit seemed to spark some demand for the pound. Sterling has been trading on a broadly steady track for more than a week now, finding an equilibrium of sorts after a multi-month period of underperformance. Germany's Merkel offered UK Prime Minister Johnson a 30-day window to come up with alternative proposals to the Irish border backstop, though this is no more than a platitude as the EU don't see there is an alternative to the backstop without breaching the Good Friday Peace Agreement. We can expect similar platitudes from today's meeting between Johnson and France's Macron.

    [USD, CHF]
    EUR-CHF has settled around the 1.0850-1.0950 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 turned lower over the last day, after on Tuesday matching the two-month high that was seen on August 7, at 1.3345. A correction low was printed at 1.3254 before the pair recouped back toward the 1.3300 mark. The lack of a signal in the FOMC minutes that the July rate cut was the start of an easing cycle, rather than a mid-cycle move, has returned buoyancy to the U.S. currency. USD-CAD support comes in at 1.3270-73.

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