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By XE Market Analysis December 9, 2019 7:54 am
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    XE Market Analysis: North America - Dec 09, 2019

    The dollar lost ground to the yen and pound, while consolidating gains seen on Friday against the euro and Canadian dollar, among other currencies. The narrow trade-weighted USD index (DXY) was little changed heading into the New York interbank open after rallying nearly 0.5% on Friday. The yen picked up a safe haven bid as European stock markets corrected after rallying on Friday in the wake of the U.S. jobs report, with uncertainty remaining about whether the U.S. and China can finally reach a deal on the limited "phase 1" trade deal, two months after being announced and with only six days until the U.S. is scheduled to hike tariffs on a further $160 bln of Chinese goods. Chinese trade data also revealed a sub-forecast 1.1% contraction in exports in November, though Japan's second release Q3 GDP report brought an unexpected upward revision, to 1.8% y/y growth. The pound rallied to new highs as two new polls showed the Conservative party extending its lead over Labour. Cable rallied a fresh eight-month high at 1.3181, while EUR-GBP dropped to a 31-month low, at 0.8393. Elsewhere, EUR-USD settled around 1.1050-60, after dropping on Friday from levels above 1.1100. Friday forecast-smashing U.S. November employment report saw the 10-year U.S. T-note over Bund yield differential rise by around 3 bp, to about 213 bps. Out of the Eurozone, German trade data today showed a better-than-expected 1.2% rise in German exports in October data, though this has had little impact on the euro.

    [EUR, USD]
    EUR-USD has settled around 1.1050-60, after dropping on Friday from levels above 1.1100. The decline was driven by dollar gains after the forecast-smashing U.S. November employment report, which saw the 10-year U.S. T-note over Bund yield differential rise by around 3 bp, to near 213 bps. Out of the Eurozone, German trade data today showed a better-than-expected 1.2% rise in German exports in October data, though this has had little impact on the euro. There remains a degree of uncertainty in global markets, with U.S.-China relations deteriorating over Hong Kong and Xinjiang just as the two side are trying the limited "phase 1" trade deal that was first announced two months ago. The U.S. deadline to hike tariffs on a further $160 bln of imported Chinese goods is due to take effect on the upcoming Sunday. Any failure to rubber-stamp the phase-1 deal would likely spark a new phase of risk aversion in markets, which in turn would support the dollar as a safe-haven currency. Overall, we retain a bearish view of EUR-USD.

    [USD, JPY]
    USD-JPY ebbed to five-day low at 108.43 as the yen picked up safe haven demand as European stocks corrected after rallying on Friday. Yen crosses have also traded lower, with EUR-JPY descending into two-week low terrain and AUD-JPY posting a five-day low. While Wall Street rallied strongly on Friday, position-taking has been much more cautious so far today, including in Asia following worse than expected Chinese export figures. There remains a degree of uncertainty in global markets, with U.S.-China relations deteriorating over Hong Kong just as the two side are trying the limited "phase 1" trade deal that was first announced two months ago. The U.S. deadline to hike tariffs on a further $160 bln of imported Chinese goods is due to take effect on the upcoming Sunday. Any failure to rubber-stamp the phase-1 deal would likely spark a new phase of risk aversion in markets, which in turn would likely see the safe-haven premium of the Japanese currency rise. Data out of Japan today showed an unexpected upward revision in Q3 GDP to 1.8% y/y, up from 0.2% in the previous quarter.

    [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 settled in the mid 1.0900s after a spell of relatively choppy trading. The cross has managed to base above the three-week seen last Wednesday at 1.0921 after rotating lower from levels above 1.1000. The cross to a degree 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 consolidated around 1.3250 after surging by about a big figure on Friday to a 1.3270 peak following the strong U.S. jobs report. A rise in the U.S. yield advantage over Canadian yields has underpinned the pairing, offsetting the near 6% week-on-week rise in oil prices. Taking a step back, 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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