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By XE Market Analysis December 5, 2018 7:47 am
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    XE Market Analysis: North America - Dec 05, 2018

    The Dollar has traded mixed, falling back against the Euro and Sterling while holding firmer versus the Dollar bloc currencies and the Yen. EUR-USD recouped to levels around 1.1350 after printing a two-day low at 1.1317, which is just over a big figure down on yesterday's peak. The low was a product of broad Dollar firming, while the rebound tracked Cable higher as political developments in the UK suggest that the odds for a no-deal disorderly Brexit have reduced. Cable gained over 0.7% in making a peak at 1.2797. A parliamentary vote late yesterday fell in favour of a motion that would change the process in the event that Prime Minister May's deal is voted down, which could potentially see Parliament take control of the Brexit process from cabinet ministers. This would allow Parliament, where a large majority of members are staunchly against a no-deal Breixt, to work through and push an alternate Brexit plan to the government's and prevent an exit without a new deal in place. This would increase the chance of a soft, Norway-like model being adopted, or remaining in the UK following a new referendum (which polls suggest would happen). USD-JPY and most Yen crosses have mostly traded firmer, rebounding from lows seen during the New York PM session yesterday. Stock markets in Europe and Asia have again declined, though by a relatively limited extent compared to yesterday, while S&P 500 futures are showing 0.5% gain in the overnight session. There is a holiday in the U.S. today, which has already thinned markets somewhat and be exacerbating the degree of market movements.

    [EUR, USD]
    EUR-USD recouped to levels around 1.1350 after printing a two-day low at 1.1317, which is just over a big figure down on yesterday's peak. The low was a product of broad Dollar firming, seen despite fresh declines in U.S. yields yesterday, while the rebound tracked Cable higher as political developments in the UK suggest that the odds for a no-deal disorderly Brexit have reduced. There is also a holiday in the U.S. today, which has already thinned markets somewhat and may have exacerbated the extent of market movements. While U.S. yields have been falling, which undermines one plank of Dollar support, yields have also been on the ebb in the Eurozone. The Eurosceptic populist movement gripping parts of the Eurozone, to which Italy's budget-planning woes are a symptom, remains a concern for investors, along with softer inflation and signs of flagging growth momentum in the Eurozone economy. The final reading of the Eurozone's November manufacturing PMI, released earlier in the week, came in at 51.8, up from preliminary estimate of 51.5, but still down from 52.0 in October and the lowest reading since August 2016. EUR-USD has been in a bear trend since April, although downside momentum has abated in recent weeks concomitantly with the fading Fed's tightening cycle. EUR-USD has resistance at 1.1359-61, and support at 1.1305.

    [USD, JPY]
    USD-JPY and most Yen crosses have mostly traded firmer, rebounding from lows seen during the New York PM session yesterday. Stock markets in Asia have again declined, though by a relatively limited extent compared to yesterday, while S&P 500 futures are showing 0.5% gain in the overnight session after the cash index closed on Wall Street with a hefty 3.2% loss yesterday. USD-JPY lifted to a high of 113.11, up from yesterday's two-week low at 112.57. EUR-JPY and other Yen crosses have also lifted. One exception has been AUD-JPY, which sank to five-session lows amid Australian Dollar underperformance following a big miss in Australian Q3 GDP data, which came in with growth of 0.3% q/q, half the median forecast had been. There remain concerns about the U.S. and China being on different pages with regard to trade, despite some positive mood music from officials on both sides of the Pacific. Trump has demanded that he wants a "real deal" or none at all. We advise taking a sell-into-gains tack for USD-JPY, and AUD-JPY in particular, given the risk for a sustained period of risk aversion in global markets.

    [GBP, USD]
    The Pound sprang back from brief post-PMI data selling, and is showing moderate gains versus the Dollar, Euro and Yen. UK political developments have seen sterling's discount unwind some, inoculating the currency from what would have otherwise been a strong selling cue. The risks of a no-deal crash-out scenario are being priced out after a parliamentary vote on a motion that would change the process in the event that the Prime Minister May's deal is voted down, which could potentially see Parliament take control of the Brexit process from cabinet ministers. This would allow Parliament, where a large majority of members are staunchly against a no-deal Breixt, to work through and push an alternate Brexit plan to the government's and prevent an exit without a new deal in place. This would increase the chance of a soft, Norway-like model being adopted, or remaining in the UK following a new referendum (which polls suggest would happen). The government's Brexit deal is still looking likely to be voted down, with between 60 and 80 Tory MPs reportedly set against it, although there is speculation that some Eurosceptic members might vote for May's deal as it least offers control of immigration and this would avoid a softer, Norway-like model being adopted, or the possibility of remaining in the EU after a new referendum. As for the data, the UK's November services PMI unexpectedly dove to a 28-month low of 50.4, down from 52.2 in the month prior and well off the median forecast for 52.5. Cable is up nearly 0.5%, above 1.2770.

    [USD, CHF]
    EUR-CHF has been re-established back above 1.1300 after come choppy price action in recent sessions. The cross has support at 1.1296-98.

    [USD, CAD]
    USD-CAD has vaulted to a three-session high at 1.3292. A turn lower in oil prices (down over 1.5% at the time of writing) and a broad rebound in the U.S. Dollar have driven USD-CAD higher. The pair remains in a broadly sideways, although choppy, range that's been unfolding for two weeks now. A safe haven dynamic has been buoying the U.S. currency, despite lower Treasury yields amid an ongoing recalibration of Fed policy expectations, where markets are now discounting a pause in the cycle following a hike this month. The BoC meets on policy this Wednesday, where no change is widely anticipated. This would leave the overnight policy interest rate at 1.75%. There is a risk dovish-leaning remarks given the terms-of-trade impact of the 30%-plus plunge in oil prices since early October, and the crude output cuts in Alberta. USD-CAD has support at 1.3160.

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