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By XE Market Analysis December 6, 2019 7:49 am
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    XE Market Analysis: North America - Dec 06, 2019

    A firmer yen and a rallying New Zealand dollar were the main shows in an otherwise quite town ahead of the release of the U.S. November employment report. The yen nudged higher despite gains in global stock markets, with position jigging seen into the release of the U.S. November employment report. USD-JPY printed a two-day low at 108.56. The Japanese currency also saw two-day highs versus the euro, sterling and other currencies. The Kiwi dollar, meanwhile, continued its recent strong outperformance, aided today by hawkish remarks by RBNZ's Bascand, who said that strong commodity prices have been supporting recovery in New Zealand, and that the economy looks to be at a turning point. NZD-USD gained for a fifth consecutive day, printing a four-month high at 0.6570. The AUD-NZD cross, which has dived by over 5% over the last four weeks amid an unusual decoupling in RBA versus RBNZ policy expectations, descended farther into four-month low terrain. Elsewhere, EUR-USD eked out a two-day high at 1.1109, remaining underpinned though in narrow ranges after some mixed data out of the U.S. this week. Sterling settled at softer levels after rallying to seven- and 31-month highs yesterday against the dollar and euro, respectively. USD-CAD also steadied after diving this week from 1.3320 (Tuesday's high) to a 1.3158 (yesterday's low). A 6%-odd rally in oil prices this week has underpinned the Canadian dollar. Focus now falls squarely on today's release of the US. November employment report. We expect the nonfarm payrolls headline to rise 190k versus the 128k seen in October. Hourly earnings are seen rising 0.3% from 0.2% previously, while the unemployment rate is expected steady at 3.6%. We won't say it's a crucial release as the FOMC is firmly on hold for now, but it will be important for what it suggests on the economy.

    [EUR, USD]
    EUR-USD slipped back under 1.1100 after eking out a two-day high at 1.1109. Mixed U.S. data this week have helped keep the pairing underpinned, somewhat, though data out of the Eurozone hasn't been great, including today's German production report for October, which showed a sub-forecast 1.7% m/m decline. Focus now falls squarely on today's release of the US. November employment report. We expect the nonfarm payrolls headline to rise 190k versus the 128k seen in October. Hourly earnings are seen rising 0.3% from 0.2% previously, while the unemployment rate is expected steady at 3.6%. We won't say it's a crucial release as the FOMC is firmly on hold for now. But, it will be important for what it suggests on the economy. Expectations are on the fence and the data could tips outlooks one way or another -- toward increased optimism on growth, or toward a more sluggish view.

    [USD, JPY]
    The yen has nudged higher despite gains in global stock markets. USD-JPY printed a two-day low at 108.56. The Japanese currency also saw a two-day low versus the euro, sterling and other currency. Overall, forex markets have been non-committal markets into the release of the November U.S. employment report and as uncertainty about the U.S.-China trade situation lingers. The principal 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, as this would be a backdrop that would maintain Japan's yield-hungry investors confidence in foreign investments.

    [GBP, USD]
    Sterling has settled at softer levels today after running higher for most of this week as markets unwound the currency's Brexit discount at a pace. Cable topped out at a seven-month high yesterday at 1.3166, while EUR-GBP printed a 31-month low. With less than a week to go until the UK's general election, it's looking increasingly unlikely that Labour will close the popularity gap with PM Johnson's Conservative party. Politico's poll track has the Conservatives with 43% support, unchanged from Monday, and Labour with 33% support, also unchanged from Monday. The gap is seen as being beyond the margins of error in polling methodology, and sufficient to return Johnson as prime minister with a working majority. The pound in the BoE's real trade-weighted measure remains 8% down on levels prevailing ahead of the vote to leave the EU in June 2016, but has rallied by just over 9% from the multi-decade low that was seen in mid August. The outcome of next week's general election is by no means a certainty. There is the possibility of opposition parties forming a coalition, or the Tories falling short of a majority and forming a coalition with the Liberal Democrats, which have stated that they would only support the party of PM Johnson on the proviso that there was a second referendum on EU membership. Also, if the Tories are returned to a Parliament with a working majority, the possibility of a no-deal Brexit would remain as they have pledged not to extend the Brexit transition period beyond the end of 2020, though many pundits, knowing Johnson, reckon that this is a ruse to win over as many ardent Brexit supporters from the Brexit party.

    [USD, CHF]
    EUR-CHF has continued a run of relatively choppy trading, dropping back to the mid 1.0900s in the latest phase, which has swung the three-week low seen earlier in the week at 1.0921 back into the scopes. The low was the culmination of a three-day drop from the one-month high seen last week at 1.1027. The cross has been correlating with the ebb and flow of global stock markets, with the franc retaining a function as a safe haven currency despite the -0.75% deposit rate in Switzerland.

    [USD, CAD]
    USD-CAD has steadied after diving from 1.3320 (Tuesday's high) to a 1.3158 (yesterday's lows). The later level is a one-month low. A 6%-odd rally in oil prices this week has underpinned the Canadian dollar. The drop in USD-CAD this week took out the 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 pairing is continuing to trade near 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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