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By XE Market Analysis December 6, 2018 7:19 am
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    XE Market Analysis: North America - Dec 06, 2018

    A risk-off theme dominated in forex markets as the global stock rout continued across European and Asian bourses, while S&P 500 futures racked up a 1.7% loss, extending the 3%-plus dive seen on Wall Street on Tuesday. The biggest currency losers have been the relatively high beta Dollar bloc and emerging market currencies, while the biggest winner has been the Yen. The likes of EUR-USD and Cable have traded neutrally, with EUR-USD oscillating in the mid-to-lower 1.1300s and Cable settled in the lower-to-mid 1.2700s, with a slight upside gain. While the U.S. T-note yield has fallen below 3%, Bund yields and other yields are also down, limiting the impact on the Dollar relative to other currencies, while the U.S. currency has also found some safe haven demand. USD-JPY and Yen crosses have remained heavy. USD-JPY posted an intraday low at 112.58, coming within 1 pip of yesterday's 16-day low, while AUD-JPY dove by nearly 1.3% into one-month lows. AUD-USD lost 1% in printing a three-week low at 0.7192. USD-CAD rallied over 0.5%, making an 18-month peak at 1.3445. News that Canada has arrested Huawei CFO on an U.S. extradition order (on charges of breaching U.S. sanctions) reinvigorated risk aversion in markets on concerns that this will further sour U.S.-China relations. Taiwan's central bank governor also said that US-China war may last up to two years.

    [EUR, USD]
    EUR-USD has been oscillating in the mid-to-lower 1.1300s. While the U.S. T-note yield has fallen below 3%, Bund yields and other yields are also down, limiting the impact on the Dollar relative to other currencies, while the U.S. currency has also found some safe haven demand. The Eurosceptic populist movement gripping parts of the Eurozone, meanwhile, to which Italy's budget-planning woes are a symptom, remains a concern, along with softer inflation and signs of flagging growth momentum in the Eurozone economy. 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. Overall, we anticipate EUR-USD will remain on a neutral plane for now in the absence of unexpected developments. EUR-USD has resistance at 1.1359-61, and support at 1.1305.

    [USD, JPY]
    USD-JPY and Yen crosses have remained heavy with the Japanese currency remaining buoyed by safe have demand as the global stock rout took another turn lower in Asia today. News that Canada has arrested Huawei CFO on an U.S. extradition order (on charges of breaching U.S. sanctions) drove underperformance in Hong Kong stocks, with the Hang Seng diving by over 3%, and was a broader selling cue on Asian bourses on concerns that this will further sour U.S.-China relations. Taiwan's central bank governor also said that US-China war may last up to two years. Also in the mix is the drop in the U.S. 10-year T-note yield back below 3%. USD-JPY posted an intraday low at 112.58, coming within 1 pip of yesterday's 16-day low, while AUD-JPY carved out a 16-day nadir at 81.27. EUR-JPY has already traded heavy, although like USD-JPY has remained just above recent lows. In Japan, BoJ's Kuroda said median- and long-term inflation expectations are not rising, re-affirming the widespread view that ultra-accommodative monetary policy will remain for a considerable time yet.

    [GBP, USD]
    Sterling has been trading neutrally so far today after finding a better footing yesterday as the risks of a no-deal crash-out Brexit scenario were dampened by a parliamentary vote, late Tuesday, that would change the Brexit 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, and in turn increase the chance of a soft, Norway-like model being adopted, or the UK remaining in the EU following a new referendum. 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 version of Brexit or the possibility of remaining in the EU. 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.

    [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 is up for a third consecutive day, posting a high at 1.3410, marking the first time above 1.3400 since June 2017. A fresh turn lower in oil prices and dovish-leaning guidance from the BoC yesterday have underpinned the pairing. The BoC noted a "materially weaker" than expected energy sector and signs that trade conflicts are weighing more heavily on global demand. The central bank also said there "may be additional room for non-inflationary growth." A safe haven dynamic has also 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. USD-CAD has support at 1.3340-43.

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