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By XE Market Analysis December 2, 2019 7:12 am
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    XE Market Analysis: North America - Dec 02, 2019

    The dollar has traded mixed, gaining on the yen, which continued to underperform, posting fractional gains versus the euro and sterling, the latter of which was suppressed by the latest political polling ahead of the UK's upcoming general election, while losing ground to the Australian and New Zealand dollars, which have outperformed so far today. Stock markets in Asia moderately, while European equities traded more neutrally. Concerns remain about progress in U.S.-China trade talks ahead of a December-15 deadline for a tariff hike, with U.S. legislation on Hong Kong human rights souring relations, but Chinese manufacturing PMI surveys came in better than expected, injecting some positivism in markets. The Caixin PMI unexpectedly lifted a two-year high of 51.8 from October’s 51.7, while the official PMI rose to 50.2 from 49.3. Yen weakness drove USD-JPYa seven-month high at 109.72 in Tokyo trading, setting up this week to be the fourth week of the last six where a higher high has been seen. EUR-JPY saw a 25-day high, and AUD-JPY an 18-day peak. The dollar, while gaining on the underperforming yen, lost ground to the Australian and New Zealand dollars, and traded within respective Friday ranges in the case against the euro, sterling and Canadian dollar, among other currencies. The pound, although leaving Friday's ranges unchallenged, saw about a 30-pip drop versus the dollar, and about a 20-pip dip against the euro, at the opening of trade following a weekend opinion poll showing the Labour party to have narrowed the gap on the Conservatives. Politicos poll tracker is showing the Conservative party with 43% support, unchanged from Friday, and Labour with 32% support, up a point from Friday. Incoming polls will be scrutinized for signs of a late surge in support, though with the election looming next Thursday, it is still looking likely that PM Johnson's Tories will be returned to parliament with a working majority. EUR-USD has continued to trade near 1.1000, having firmed up after edging out a 27-day low at 1.0982 on Friday.

    [EUR, USD]
    EUR-USD has continued to trade near 1.1000, having firmed up after edging out a 27-day low at 1.0982 on Friday. Focus today is on the final PMI data for November out of the Eurozone, which should repaint a picture of stabilisation in the economy, though with a good hint of fragility. U.S. ISM and PMI figures, meanwhile, should reaffirm relative strength of the U.S. economy, which was highlighted by last week 2.1% growth print in the second estimate for Q3 GDP, fitting of Fed Chair Powell's "glass half full" characterisation of the economy. The fresh souring in relations between the U.S. and China, with the latter threatening as yet unspecified "counter measures" after President Trump signed off on the Hong Kong Human Rights bill, is arguably a dollar positive, too, in the sense that the world's reserve currency has benefited during phases of risk aversion in global markets, which attracts demand for U.S. Treasuries. Negative yielding Bunds has been an added factor weighing on EUR-USD. We retain a neutral-to-bearish view of the pairing, which has been chopping around 1.1050 since early August, ranging from 1.0879 to 1.1179 over this period. The low marked a two-and-a-half year trough, the culmination of a bear trend that's been unfolding since early 2018, from levels around 1.2500. Momentum of this trend waned as the Fed cut interest rates three times from late July, though markets have now pared back future easing expectations.

    [USD, JPY]
    The yen posted fresh lows during Tokyo trading before finding a footing. Stock markets in Asia lifted moderately, though paring intraday gains, while European stocks traded more neutrally. While concerns remain about progress in U.S.-China trade talks ahead of a December-15 deadline for a tariff hike, with U.S. legislation on Hong Kong human rights souring relations, Chinese manufacturing PMI surveys came in better than expected. The Caixin PMI, released today, unexpectedly lifted a two-year high of 51.8 from October’s 51.7, while the official PMI, released Saturday, rose to 50.2 from 49.3. The yen posted new trend lows against the dollar and some of the other main currencies. USD-JPY clocked a seven-month high at 109.72, setting up this week to be the fourth week of the last six where a higher high has been seen. EUR-JPY saw a 25-day high, and AUD-JPY an 18-day peak. The biggest directional driver of the yen will likely to remain the ebb and flow of risk appetite in global markets. This will keep developments on the U.S.-Chine trade front will be front and centre. Assuming the phase-1 deal comes (eventually) to fruition, and with the U.S. economy enjoying what looks like a goldilocks economy -- growth slower, but still holding comfortably in positive expansion with inflation remaining benign -- then more upside would likely be seen in USD-JPY. In Japan, "Abenomics" has been getting a dusting down. Japanese PM Abe earlier in the month pledging a renewed push of fiscal stimulus, while BoJ Governor Kuroda said last week that there is "ample room" for more easing, though fresh stimulus was being considered at the currency juncture.

    [GBP, USD]
    The pound, although leaving Friday's ranges unchallenged, saw about a 30-pip drop versus the dollar, and about a 20-pip dip against the euro, at the opening of trade following a weekend opinion poll showing the Labour party to have narrowed the gap on the Conservatives. Politicos poll tracker is showing the Conservative party with 43% support, unchanged from Friday, and Labour with 32% support, up a point from Friday. Incoming polls will be scrutinized for signs of a late surge in support, though with the election looming next Thursday, it is still looking likely that PM Johnson's Tories will be returned to parliament with a working majority. In data, the final UK manufacturing PMI for November was revised higher, to 48.9 from the 48.3 in the preliminary reading. The headline still declined from October's 49.6. The breakdown confirmed that output, new orders and employment in the sector all declined, and the survey showed destocking to have been afoot as firms depleted buffers build-up before the October-31 Brexit date was delayed. Political and Brexit uncertainty remain a drag on activity, which is likely to remain the case through to at east January.

    [USD, CHF]
    EUR-CHF rallied to a one-month high at 1.1027. Recent gains have returned the cross to the upper portion of a broadly sideways range that's been persisting over the last three months.

    [USD, CAD]
    USD-CAD has settled back in the upper 1.3200s after another in a series of recent failed attempts to hold gains above 1.3300. The pair had lifted on Friday amid Canadian dollar weakness after China's threatened "firm counter measures" to President Trump's signing-off on the U.S. Hong Kong Human Rights bill, a product of which was lower oil prices. Front-month WTI crude prices are down over 3% from week-ago levels. USD-CAD has remained above the two-week low seen at 1.3254 on November 22, which was set after BoC Governor Poloz stated that interest rates are "about right," which was taken as a partial walk-back of recent dovish signalling from the central bank. The 10-year U.S. over Canadian yield spread has been remaining in near lock-step over the last week. At prevailing levels, USD-CAD is trading near to the midway point of a broadly, at times choppy, sideways range that's been seen since July 2018. More of the same looks likely.

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