Home > XE Currency Blog > XE Market Analysis: North America - Aug 28, 2019

AD

XE Currency Blog

Topics6741 Posts6786
By XE Market Analysis August 28, 2019 6:45 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 4665
    XE Market Analysis: North America - Aug 28, 2019

    The Dollar has continued to trade in a directionally mixed manner, today holding steady against the Yen while gaining versus the Euro and against an underperforming Pound, the latter of which was hit by news that the UK prime minister is taking a controversial measure to prorogue (suspend) parliament as a means to limit the opportunity of opposition parties to take the no-deal Brexit option off the table. EUR-USD printed a four-session low at 1.1082 in what is now a third consecutive day of decline. Eurozone data this week, which has included a sub-forecast reading in the German July Ifo index and German Q2 GDP (the latter showing a 0.1% q/q contraction), have upped the ECB stimulus ante heading into the central bank's September policy meeting. The upped risk for the UK exiting the EU sans deal is also a negative for the Euro. Elsewhere, USD-JPY has traded steadily in the upper 105.0s so far today, though has retained a richened safe premium versus week-ago levels, with the currency showing a 0.7%-0-8% gain versus the dollar and euro, and a 1.4% advance on the Australian dollar (at levels prevailing just ahead of the New York interbank opening today).

    [EUR, USD]
    EUR-USD printed a four-session low at 1.1082 in what is now a third consecutive day of decline. Eurozone data this week, which has included a sub-forecast reading in the German July Ifo index and German Q2 GDP, the latter showing a 0.1% q/q contraction, have upped the ECB stimulus ante heading into the central bank's September policy meeting, in turn imparting a downward bias on the euro. The risk of a no-deal Brexit, the risk for which has been amplified by the UK prime minister's move to suspend parliament, and which in the event would be detrimental to the Eurozone economy, is also on the worry list with regard to the common currency, along with political risk in Italy. As for the dollar, the abatement in risk aversion this week has been a boon for the greenback, taking some of the pressure off the Fed. We retain a bearish view of EUR-USD. Support comes in 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 dropped sharply on news that Boris Johnson is taking the "proroguing option" -- closing down parliament from mid September. This is highly controversial given the timing ahead of the Brexit deadline on October 31 as it will greatly reduce the time opposition members will have in their attempts to prevent a no-deal Brexit. It is still possible that opposition members could legislate against a no-deal scenario, but the odds of it happening have now reduced. It will also mean that the opposition will now not be able to attempt to bring down the government by a confidence motion until late October, meaning that Johnson would -- even if his government losses a confidence vote -- still be able to trigger Brexit on October 31, before an election could be staged. Cable dove from levels above 1.2280 to a six-day low at 1.2155. For reference, the recent major trend low -- the 28-monht low that was seen on August 11 -- is at 1.2015.

    [USD, CHF]
    EUR-CHF has been in sideways, sometimes choppy range for two weeks now, holding above the 25-month low seen on August 15. The low was a product of increased expectations for ECB monetary stimulus, and partly an increased safe haven premium being placed on the Swiss currency, despite the punishing -0.75% deposit rate. We expect the cross to remain heavy. While sentiment in global markets has improved this week, there remains a thread of skittishness. The the risk of a disorderly no-deal Brexit on October 31 is also a negative for the Euro.

    [USD, CAD]
    USD-CAD edged out a two-day high at 1.3310, extending a rebound from the two-week low seen yesterday at 1.3225. The pairing has been lacking clear direction over the last three weeks, which follows a rally phase out of the 10-month low seen in mid July at 1.3109. The evolution of the Trumpian trade war and its impact on the global economy will continue to have potentially directional impact on USD-CAD given the Canadian Dollar's standing as a commodity currency. USD-CAD has support at 1.3270-73.

    Paste link in email or IM