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By XE Market Analysis December 13, 2018 7:58 am
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    XE Market Analysis: North America - Dec 13, 2018

    The Dollar has been trading mixed-to-firmer, losing a little ground to the Euro and the Pound, both of which settled after falling sharply over the last day, while gaining versus the Yen and other currencies. Both the Euro the Pound remain heavy overall as political uncertain envelopes sentiment, with French President Macron facing a parliamentary debate tomorrow on possible no confidence vote and UK Prime Minister May facing an actual no confidence vote today (the result of which should be known by around 21:00 GTM, or 16:00 ET). EUR-USD has held within about 30 pips of the 12-day low that was seen late yesterday at 1.1306. Cable settled around 1.2540-50 after printing a fresh 20-month low at 1.2476. USD-JPY, meanwhile, posted a nine-day high of 113.51, in what is a second consecutive day of gains, and AUD-JPY concurrently printed a six-day high. A revival in risk appetite in global markets has seen the some of the Yen's safe haven premium unwind. S&P 500 futures were showing gains of over 1% at the overnight-session highs. Ahead today, there is risk in today's U.S. November CPI following a perky PPI reading yesterday. We're forecasting an unchanged result for the headline, after rising 0.3% previously, with a 0.2% gain forecast for the ex-food and energy component, the same as October.

    [EUR, USD]
    The euro has remained heavy, weighed on by political uncertainty in Europe, with French President Macron facing a parliamentary debate tomorrow on possible no confidence vote and UK Prime Minister May facing an actual no confidence vote today. EUR-USD has held within about 30 pips of the 12-day low that was seen late yesterday at 1.1306. Brexit and associated UK political uncertainty, along with Macron's plight, have served to make the Dollar a more attractive proposition, despite the ongoing recalibration in Fed policy expectations. The risk of a lose-lose no-deal Brexit scenario is also a negative for the Eurozone economy. Upside risk in today's U.S. November CPI report is another a factor in the mix following a perky PPI reading yesterday. We're forecasting an unchanged result for the headline, after rising 0.3% previously, with a 0.2% gain forecast for the ex-food and energy component, the same as October. EUR-USD has been in a bear trend since April, although downside momentum has abated in recent weeks as Fed policy expectations are recalibrated. We still take an overall bearish view of the pairing. The U.S. economy remains strong, even if the Fed's tightening course is heading for a pause, while conviction for eventual ECB tightening has concurrently faded with the Eurozone economy losing momentum. The Eurosceptic populist movement gripping parts of the Eurozone, to which Italy's budget-planning woes, the riots in France and the Brexit mess are all symptoms, also remains a concern. EUR-USD has resistance at 1.1350-55, and support at 1.1300.

    [USD, JPY]
    USD-JPY has posted a nine-day high of 113.51, in what is a second consecutive day of gains. AUD-JPY has concurrently printed a six-day high, while EUR-JPY and other Yen crosses have seen intraday strength. A revival in risk appetite in global markets has seen the some of the Yen's safe haven premium unwind. S&P 500 futures are up over 1%, while Asian equity bourses are showing solid gains, although Chinese markets have been underperforming. Japan's Nikkei 225 has gained 2.2%, and Australia's ASX 200 closed 1.4% for the better, while China's SSE index has risen by a modest 0.3%. Trump sparked a risk-on turn after saying in an interview with Reuters that talks were ensuing with Beijing by phone, and that he would not raise tariffs on Chinese imports until he was sure about a deal. He also said that he could intervene in the case of the detained Huawei CFO if it would benefit US national security or help secure a trade deal with China. Trump also added that it would be "foolish" for the Fed to hike rates at its policy meeting next week. In data, Japan's October tertiary industry index rose 1.9% m/m, beating the median forecast for a 0.8% rise. USD-JPY has support at 113.31-33, and resistance at 113.65.

    [GBP, USD]
    Cable is firmer on the day, but remains generally heavy after hitting a 20-month low at 1.2480 yesterday. Political and Brexit uncertainty are high in the UK, with Conservative Party rebels forcing a no confidence vote on Prime Minister May, which will take place today between 6 and 8 PM in London. Recent indications suggest that she would likely survive such a vote, although her position remains fragile and she has been having little apparent success in her desperate-looking attempt to sweeten the Withdrawal Agreement deal with the EU after postponing the parliamentary vote on it. The Brexit situation remains fluid. May will hoping to shore up support for the deal by generating support from Labour and other opposition party MPs on fears of there being a no-deal exit from the EU. When the UK parliament will vote hasn't been confirmed, though it is looking like it will be in January. A Downing Street spokesperson stated it would take place before Parliament's January-21 deadline, which would leave little time to pass the ensuing Brexit legislation in time for the official EU-leaving date on March 29. Out best guess at the moment is that the deal is destined to be voted down by Parliament, and then followed by a new referendum, which in turn would imply an extension to the Article 50 EU leaving date some months beyond March 29. We estimate the Pound is trading at a 15% trade-weighted discount relative to prevailing levels that were seen just below the vote to leave the EU in June 2016.

    [USD, CHF]
    EUR-CHF has settled after yesterday extending to a two-and-a-half month low at 1.1225. The losses reflect Brexit-related angst after UK Prime Minister May postponed the parliamentary vote on the EU Withdrawal Agreement, which generated confusion and increased the perceived risk of a hard, no-deal Brexit scenario. This weighed on both the Pound and the Euro while reviving the Franc's historic role as a safe haven (despite the punishing -0.75% overnight deposit rate). The SNB conducts its next quarterly policy review tomorrow. The central bank has been continuing to tread carefully amid heightened uncertainty about the economic outlook, geopolitical risks and protectionist threats. Recent market volatility and Brexit risks will do little to change the SNB's stance, and we expect the central message to remain that the situation remains fragile and the currency "highly valued" while maintaining policy unchanged.

    [USD, CAD]
    USD-CAD has remained buoyant but below last week's 18-month high at 1.3445. A rebound, or at least steadying, in oil prices after OPEC agreed on a 1.2 mln barrel per day output cut, along with Friday's sub-forecast U.S. jobs report, have curtailed USD-CAD's upside momentum. Overall, we continue to take a bullish view. The pair has resistance at 1.3445-50, and support at 1.3347-50.

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