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By XE Market Analysis December 4, 2019 7:46 am
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    XE Market Analysis: North America - Dec 04, 2019

    The yen came under pressure as a risk-on trade broke out in global markets, with stock markets and high beta assets and currencies rallying and safe haven assets and currencies falling back. The catalyst was a Bloomberg report, citing U.S. officials who are in the loop of the trade negotiations with China saying that progress to a deal is being made despite tensions over Hong Kong and Xinjiang, and that a "phase 1" deal could be signed off before December 15, the U.S. deadline for further tariff hikes. USD-JPY upwardly popped by about 30 pips in making 108.79. The pair had earlier printed a two-week low at 108.43. Yen crosses saw a similar price action. Elsewhere, EUR-USD has drifted moderately lower from the two-week high seen yesterday at 1.1093. Final November services PMI for the Eurozone was revised higher today, signalling modest expansion in the economy, though to little impact on the common currency. The pound printed fresh six-month highs against both the dollar and euro. Cable's peak is at 1.3041, and EUR-GBP's low is at 0.8481. The high in Cable came ahead of the above-forecast final reading in the UK's November services PMI, which didn't itself have much bearing on the pound, apart from a brief bid in the immediate wake of the release. With just eight days to go until the UK's general election, it's looking less likely that Labour will be able to close the polling gap with the Conservative party, and this is what has been underpinning the pound. USD-CAD turned lower as risk appetite picked up, dropping back under 1.3300, a level the pair has been oscillating around for two weeks now. Australian dollar, like its dollar bloc brethren, also picked up bids, though remained net lower on the day following sub-forecast Australian Q3 GDP data.

    [EUR, USD]
    EUR-USD has drifted moderately lower from the two-week high seen yesterday at 1.1093. A safe-haven bid for dollars put a cap on the pairing after President Trump, nearly two months after announcing the limited "phase 1" trade deal with China, said that trade negotiations may be postponed until after the 2020 presidential election, although the latest twist, via sources cited by Bloomberg, is that progress toward a deal before scheduled tariff hikes on December 15 is being scheduled. How the U.S.-China trade dispute unravels, and what impact it has on the U.S. economy, remains a wildcard. It's now nearly two months since the limited "phase one" deal was announced, and Washington is due on December 15 to hike tariffs on a further $160 bln of Chinese imports. EUR-USD 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 pared back future easing expectations over the last month. The Eurozone economy, meanwhile, has shown signs of steadying following recent manufacturing-led weakness, though remains fragile and it remains difficult to construct a convincing medium- to-longer term bullish argument for the euro. Final November services PMI for the Eurozone were revised higher today, signalling modest expansion in the economy.

    [USD, JPY]
    The yen pared gains as a risk-on trade broke out in global markets, with stock markets and high beta assets and currencies rallying and safe haven assets and currencies falling back. The catalyst was a Bloomberg report, citing U.S. officials who are in the loop of the trade negotiations with China saying that progress to a deal is being made despite tensions over Hong Kong and Xinjiang, and that a "phase 1" deal could be signed off before December 15, the U.S. deadline for fresh tariff hikes. USD-JPY upwardly popped by about 30 pips in making 108.79. The pair had earlier printed a two-week low at 108.43. Yen crosses saw a similar price action. There have been many false downs before with regard to progress on the trade front, either with the scaled-down phase-1 deal, which was first announced nearly two months ago, and more generally since President Trump started the trade dispute started mid 2018. What is perhaps different this time, is that the planned tariff hikes on a further $160 bln of Chinese goods on December 15 will directly impact U.S. consumer goods, which might be channelling Trump's mind as he heads into election year. Beijing will be factoring this a possibility, so whether it gives Trump enough of what he wants remains uncertain. There has been conjecture that China, not being inconvenienced by elections, might have strategically dug in to weather the economic slowing at least until after the presidential election next November.

    [GBP, USD]
    The pound has printed fresh six-month highs against both the dollar and euor. Cable's peak is at 1.3041, and EUR-GBP's low is at 0.8481. The high in Cable came ahead of the above-forecast final reading in the UK's November services PMI, which didn't itself have much bearing on the pound, apart from a brief bid in the immediate wake of the release. With just eight days to go until the UK's general election, it's looking less likely that Labour will be able to close the polling gap with the Conservative party. Politicos poll tracker is showing the Conservative party with 43% support, and Labour with 33%, both unchanged over the last day. While there was a tick higher in support for Labour over the last weekend, there is no sign of a surge in support, and it continues to look likely that PM Johnson's Tories will be returned to parliament with a working majority. This said, there is an air of unpredictability about this election. For one, there is a large proportion of undecided voters, of between 16% and 26% based on polls from YouGov, Survation an Opinium over the last week. Studies cited by Reuters suggested that the percentage of floating voters could be as high as 50%, though we would question the plausibility of this given the dominance of Brexit as an issue. PM Johnson's Tories is the only choice for Brexit supporters that is guaranteeing departure from the EU (given that UKIP is now an non-entity and that the Brexit party isn't contesting Tory-held seats). Any outcome in the election other than a Tory majority would almost certainly lead to a second referendum on EU membership. This will galvanise Brexit supporters, though anti-Brexit tactical voting is a wildcard risk to Johnson.

    [USD, CHF]
    EUR-CHF has dropped for a third consecutive trading day, this time hitting a three-week low at 1.0923. The decline in the cross have correlated with the prevailing risk-off phase that started at Friday's release of disappointing U.S. manufacturing ISM data.

    [USD, CAD]
    USD-CAD has been oscillating around the 1.3300 level for two weeks now. Last Friday's sub-forecast U.S. manufacturing has seen the U.S. yield advantage over Canadian yields narrow, which has kept USD-CAD's upside in check. The has in the meanwhile 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. Oil prices, although modestly firmer, are still showing about a 3% decline from week-ago levels. Overall, a mixed pool of influencers on USD-CAD. The pairing 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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