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By XE Market Analysis December 11, 2019 6:57 am
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    XE Market Analysis: North America - Dec 11, 2019

    The dollar has seen ranges of no more than 20 pips against both the euro and yen so far today, while posting losses to the Australian dollar and the pound. The UK currency retraced some of the sharp declines seen late yesterday following the release of the latest YouGov poll --- using its famed MRP methodology (massive survey size and deep analysis to take in account of local factors), and which correctly called 93% of seats in the 2017 election -- showing on the eve of the UK's general election that a Conservative majority of 28 seats is likely, down from 68 seats the same poll predicted two weeks ago. The result is significant as it suggests that the possibility of the Conservatives falling short of a majority is now within statistical margins of error. Cable dove late yesterday by about a big figure in making a 1.3107 low. The pair was trading at 1.3150 bid heading into the New York interbank open. The YouGov poll also showed the Brexit Party failing to pick a single seat, which would see any lingering risk for a no-deal Brexit evaporate. EUR-USD has remained directionally challenged, holding narrow ranges below 1.1100. USD-JPY managed to eke out a five-day high at 108.85 in early Tokyo, but the overall range so far today remains less than 20 pips. Markets are non-committal, partly due to seasonal considerations and partly amid a certain anxiety ahead of the weekend's deadline for the U.S. to hike tariffs on a further $160 bln worth of Chinese goods. The Australian dollar rallied by nearly 0.5% versus the U.S. buck. The triggering of buy stops in AUD-NZD, which following a month of precipitous declines, drove the move. The prompt was the November SEEK employment report in New Zealand, which showed a 0.8% seasonally-adjusted fall.

    [EUR, USD]
    EUR-USD has remained directionally challenged, holding narrow ranges below 1.1100. Markets are non-committal, partly due to seasonal considerations and partly amid a certain anxiety ahead of the weekend's deadline for the U.S. to hike tariffs on a further $160 bln worth of Chinese goods. A delay in this deadline is possible, if a phase-1 deal fails to come to fruition, while an implementation of the new tariffs would mark an escalation in the trade war and cause a significant risk-off response in illiquid year-end global markets (which would likely be bearish for EUR-USD). The Fed concludes the two-day FOMC meeting today, and is widely expected to leave policy on hold while repeating its glass half full view of the economy. The Fed is also expected to signal an ongoing policy pause, until there is a "material change" in the outlook. The European calendar has been quiet today.

    [USD, JPY]
    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. Aside from being supportive of the dollar, such a backdrop would also be one that would maintain Japan's yield-hungry investors' confidence in foreign investments.

    [GBP, USD]
    The pound has steadied after dropping quite sharply late yesterday after latest YouGov poll --- using its famed MRP methodology (massive survey size and deep analysis to take in account of local factors), and which correctly called 93% of seats in the 2017 election -- showed that a Conservative majority of 28 seats is likely, down from 68 seats the same survey predicted two weeks ago. The result is significant as it suggests that the possibility of the Conservatives falling short of a majority is within statistical margins of error. Seasoned political pundits in the UK have been warning about unpredictability in this election, despite polling showing a consistent 10-point odd lead for the Conservatives, due to the relatively large degree of undecided voters, most of which were people who had voted for Labour in the 2017 election, along with the pro-EU campaign to encourage tactical voting. To be sure, a Conservative-with-majority remains the most likely scenario. Survation, a conventional pollster which was closest to the result in 2017, is showing a 14-point Conservative lead, while Politico's poll tracker has the Conservatives at 43% support, unchanged since Monday last week, and Labour with 34% support, up a point from yesterday. One thing that stands in the YouGov MRP poll is that it shows the Brexit Party failing to win a single seat. That is significant as it would mean that a no-deal Brexit would be off the table, as the party wouldn't be in any position to hold the Conservative Party's feet to the fire over the next election cycle (five years). We assume here that Johnson's past rhetoric about a no-deal-Brexit-if-necessary was essentially bluff. If the Conservatives are forced to form a minority or coalition government, they would have to look to either Northern Ireland's DUP or the Liberal Democrats. The DUP would insist on re-doing the Brexit deal (back to square one), while the Liberal Democrats would insist on there being a second referendum. If there is a shock Labour victory, or Labour-led minority or coalition government, then a soft Brexit deal would be proposed and then be put to a confirmatory referendum.

    [USD, CHF]
    EUR-CHF has steadied after printing a near-one-month low at 1.0912,. 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 continued to consolidate below 1.3250 after surging by about a big figure last 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% weekly 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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