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By XE Market Analysis February 1, 2019 7:07 am
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    XE Market Analysis: North America - Feb 01, 2019

    The Dollar has traded mixed into the release of the January U.S. jobs report, losing modest ground to the Euro while holding near net unchanged against the Yen and gaining on the Pound, which took a hit on weak UK data, and the Australian and Canadian Dollars. Risk appetite has been cautious, with most stock markets in Europe and Asia having traded moderately softer. EUR-USD lifted back above 1.1450 on broader, albeit moderate, Euro gains, but has remained below its post-Fed high at 1.1514. Eurozone data have been a mixed bag, with the flash estimate of January Eurozone HICP inflation falling to 1.4% y/y in the headline reading, down from 1.6% in the month prior, though core inflation ticked higher, to 1.1% y/y from 1.0% y/y. The final reading of January Eurozone manufacturing PMI came in unrevised at 50.5. USD-JPY has parked in the upper 108.0s, above the two-week low seen the day before at 108.49. Cable clocked an eight-day low at 1.3043 while EUR-GBP climbed over 0.5% in pegging a high at 0.8793. The January manufacturing PMI fell to 52.8, down from 54.2 in December and well off the median forecast for 53.5. The most notable finding in the report was a series-record (sine 1992) level of stockpiling of inputs, reflecting Brexit preparations by manufacturers. Market participants are now eyeing today's release of the January payrolls report out of the U.S., which will be subject to distortion, though some economists, including ourselves, are still expecting an overall solid report. We expect a 200k headline gain, while the median forecast is for a 165k gain. This would follow December's solid 312k rise. Anything at or above the median, depending on back revisions, would be taken as a tonic at a time of increasing uncertainty about the U.S. and global economic outlook.

    [EUR, USD]
    EUR-USD has lifted back above 1.1450 on broader, albeit moderate, Euro gains, but has remained below its post-Fed high at 1.1514. Eurozone data have been a mixed bag, with the flash estimate of January Eurozone HICP inflation falling to 1.4% y/y in the headline reading, down from 1.6% in the month prior, though core inflation ticked higher, to 1.1% y/y from 1.0% y/y. The final reading of January Eurozone manufacturing PMI came in unrevised at 50.5. Market participants are now eyeing today's release of the January payrolls report out of the U.S., which will be subject to distortion, though some economists, including ourselves, are still expecting an overall solid report. We expect a 200k headline gain, while the median forecast is for a 165k gain. This would follow December's solid 312k rise. Anything at or above the median, depending on back revisions, would be taken as a tonic at a time of increasing uncertainty about the U.S. and global economic outlook. EUR-USD has resistance at 1.1470-72, tested earlier, and support at 1.1420.

    [USD, JPY]
    USD-JPY has parked in the upper 108.0s, above the two-week low seen the day before at 108.49. The Yen has been trading mixed against other currencies. The U.S. and China reportedly made substantial progress in trade talks, and President Trump said he will meet with China's Xi soon to try an seal a deal, though this wasn't enough to lift stock markets in Asia following a fall in China's Caixin manufacturing PMI, to 48.3 in January from 49.7 in December, the lowest figure since 48.0 in February of 2016. Market participants are also eying today's release of the January payrolls report out of the U.S., which will be subject to distortion, though some economists, including ourselves, are still expecting an overall solid report. We expect a 200k headline gain, while the median forecast is for a 165k gain. This would follow December's solid 312k rise. Anything at or above the median, depending on back revisions, would be taken as a tonic at a time of increasing uncertainty about the U.S. and global economic outlook.

    [GBP, USD]
    Sterling has come under across-the-board pressure, both into and, more especially, after the release of a disappointing UK manufacturing PMI report. Cable clocked an eight-day low at 1.3043 while EUR-GBP climbed over 0.5% in pegging a high at 0.8793. The January manufacturing PMI fell to 52.8, down from 54.2 in December and well off the median forecast for 53.5. The most notable finding in the report was a series-record (sine 1992) level of stockpiling of inputs, reflecting Brexit preparations by manufacturers. The report also showed a marked slowing in new order inflows, while the trend in production volumes was the weakest since mid 2016 and new export business was near stagnation. The report sharped market focus on the economic impact that Brexit uncertainty is causing. Cable has resistance at 1.3097-1.3100, and support at 1.3011-13.

    [USD, CHF]
    EUR-CHF has settled back in the upper 1.1300s after yesterday clocking an 11-week high at 1.1429. The price action extends a phase of relatively high volatility that the franc has seen, which has been through several periods of pronounced underperformance over the last month, and which have often been accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said last week that "current monetary policy is the right one and we will continue to with it for some time." He said that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario. SNB vice president, Zurbruegg, also said last week that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate."

    [USD, CAD]
    USD-CAD has consolidated around the 1.3150 mark after printing a near three-month low at 1.3118 on Wednesday. The combo of the Fed's dovish turn and higher oil prices has been bearish fodder for USD-CAD. Resistance comes in at 1.3209-10, and support at 1.3065-67. Today's Canadian calendar is empty, but market participants will be eying today's release of the January payrolls report out of the U.S., which will be subject to distortion, though some economists, including ourselves, are still expecting an overall solid report. We expect a 200k headline gain, while the median forecast is for a 165k gain. This would follow December's solid 312k rise. Anything at or above the median, depending on back revisions, would be taken as positive for the U.S. Dollar.

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