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By XE Market Analysis August 27, 2019 7:44 am
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    XE Market Analysis: North America - Aug 27, 2019

    The Dollar has been putting in another mixed day of trading, losing ground to the Yen and Sterling, holding near net unchanged versus the Euro while gaining moderately against the Australian and New Zealand Dollars. The Yen firmed and then softened, firming amid intraday declines in European equity markets and S&P 500 futures, and then paring gains as equity market sentiment improved. While President Trump's apparent walk back of his trade war stance has mollified investors -- and not without good reason as it's now pretty clear that he will not push things too far given the threat of recession and sustained stock market declines -- there remains an antsy undertone in market sentiment. USD-JPY printed an intraday low at 105.59, putting in some distance from yesterday's 106.41 peak, before recouping to around 105.80-90. EUR-USD has been flatlining around 1.1100, consolidating declines seen yesterday following sub-forecast German Ifo index, which fell to 94.3 in August, the lowest since Nov 2012. Data today showed the expected export-driven drop in German Q2 GDP, to -0.1% q/q, which bolstered ECB easing expectations, in turn lending support to equities. Sterling has taken a turn higher versus the dollar and euro, among other currencies, which partially reversed losses seen over the last day and come ahead of a meeting of anti-no-deal Brexit opposition members of parliament today. USD-CAD declined for a third consecutive day, today printing a two-week low at 1.3225. Improved risk appetite in global markets has been returning support to the Canadian dollar. Oil prices have also found a footing over the last day after dropping sharply in the latter part of last week.

    [EUR, USD]
    EUR-USD has been flatlining around 1.1100, consolidating declines seen yesterday following sub-forecast German Ifo index, which fell to 94.3 in August, the lowest since Nov 2012. We retain 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 political situation in Italy is also on the worry list, with talks to form a new coalition government stumbling. EUR-USD has support at 1.1079-80, and resistance at 1.1147-50.

    [USD, JPY]
    The Yen firmed and then softened, firming amid intraday declines in European equity markets and S&P 500 futures, and then pared gains as equity market sentiment improved. While President Trump's apparent walk back of his trade war stance has mollified investors, and not without good reason as it's now pretty clear that he will not push things too far given the threat of recession and sustained stock market declines, there remains an antsy undertone in market sentiment. USD-JPY printed an intraday low at 105.59, putting in some distance from yesterday's 106.41 peak, before recouping to around 105.80-90.

    [GBP, USD]
    Sterling has taken a turn higher versus the dollar and euro, among other currencies. The gains have partially reversed losses seen over the last day, and while there doesn't appear to have been a specific buying catalyst, come ahead of a meeting of anti-no-deal Brexit opposition members of parliament today. What's become apparent is that support in this group for a confidence motion has fallen away as many non-Labour opposition members are against the idea of Labour's Jeremy Corbyn becoming the leader of an interim government (in the event a confidence vote was successful in bringing down Boris Johnson's government). Much of the anti-no-deal group's focus now centres on preventing a no-deal by legislation, along with strategising on ways to stop the prime minister proroguing (temporarily shutting down) parliament in September. Battle will commence next Tuesday, when parliament reopens after the summer recess. Given the level of support in parliament for ruling out the no-deal option, including some members from the government's own Conservative Party, there is a reasonable chance that no-to-no-deal members will succeed. If a no-deal Brexit is legislated off the table, this would increase the odds of there being an extension, which in turn would put Prime Minister Johnson, having promised to deliver Brexit on October 31 "no ifs or buts," in a difficult position, from which, he would be highly tempted to call a general election.

    [USD, CHF]
    EUR-CHF has turned back under 1.0900 as risk-off conditions returned to global markets. 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 is down for a third consecutive day, today printing a two-week low at 1.3230. Improved risk appetite in global markets has been returning support to the Canadian dollar. Oil prices have also found a footing over the last day after dropping sharply in the latter part of last week. USD-CAD has resistance at 1.3270-73.

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