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By XE Market Analysis February 5, 2019 6:43 am
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    XE Market Analysis: North America - Feb 05, 2019

    The Dollar has remained buoyant, printing fresh highs against some currencies, still benefitting from the strong U.S. January jobs report and other perky releases. EUR-USD carved out a six-day low at 1.1411, and Cable printed a 13-day low at 1.3002, aided lower by a spell of Sterling selling following a miss in the UK's January services PMI report, which at 50.1 showed the dominant UK sector to be in virtual stagnation. Eurozone data were net positive, though this had little impact on the Euro. The Eurozone composite PMI was unexpectedly revised higher as was the services PMI and while December retail sales disappointed, the quarterly rate actually showed a marked improvement in Q4 last year. The Australian Dollar rallied after the RBA refrained from aping the Fed's dovish turn following its policy meeting today, where it left the cash rate at the record low 1.50%, as widely anticipated. AUD-USD had been under pressure ahead of the RBA's announcement, making a one-week low at 0.7194, which followed weaker than expected retail sales data out of Australia. But widespread market expectations for a dovish shift -- hinged on the view that the central bank would want to offset the Fed's move given the 3%-odd year-to-date rally the Aussie Dollar vs the U.S. Dollar, and given the weakening housing market -- failed to materialise. The RBA instead clung to the view that its policy targets are being "gradually" achieved, and also sounded upbeat on the "strong" labour market. AUD-USD rallied by over a net 0.5% in making a high of 0.7264. Elsewhere, USD-JPY held little more than a 25 pip range, printing an intraday high at 110.04 before ebbing back under 110.0, leaving yesterday's five-week high at 110.16 unchallenged. Global equity markets and oil prices remained buoyant.

    [EUR, USD]
    EUR-USD has drifted to the lower 1.1400s, putting in some extra distance from the three-week high seen last week at 1.1514. Recent daily lows in the 1.1390 to 1.1406 range form a support zone. The latest phase of EUR-USD's ebb has in part been driven by broader Euro declines. Brexit uncertainty, and PMI evidence this week that it is having a material impact on economic activity, has been weighing. In EUR-USD's case, this juxtaposes a recent run of strong data (including employment, ISM and construction reports, among other items). We expect EUR-USD to see further downside. Resistance at 1.1430-32, and support at 1.1390-95.

    [USD, JPY]
    USD-JPY has posted a narrow range so far today, holding little more than a 25 pip range, printing an intraday high at 110.04 before ebbing back under 110.0, leaving yesterday's five-week high at 110.16 unchallenged. Global equity markets have remained buoyant, though markets in China, Taiwan, South Korea, Singapore and Indonesia have all been closed for the Lunar New Year. Japan's Nikkei hit a seven-week high before closing with a fractional 0.2% loss. Australia's ASX index closed with a 2% gain. The MSCI World Index has scaled to a two-month high having gained 13% from the near two-year nadir that was seen in late December. Oil prices are up over 20% year-to-date. The risk-on backdrop has seen the Yen trade lower against most other currencies, reflecting an unwinding in the currency's safe haven premium.

    [GBP, USD]
    Sterling came under pressure in the wake of the UK services PMI miss, which has pushed Her Majesty's currency to 13-day lows versus the Dollar and into two-day low territory against both the Euro and Yen. Cable printed a low at 1.3002. The UK's January services PMI dove to 50.1, down from 51.2 in December and indicating near stagnation in the UK's big service sector. The outcome is the weakest since July 2016 and the second weakest since December 2012. New orders contracted for the first time in two-and-a-half years, and employment fell for the first time since December 2012. Respondents overwhelming linked the slowdown in business activity to heighted Brexit-related political uncertainty. The composite PMI reading fell to 50.3, showing a significant deceleration in economic activity. The data also flag risk of there being negative growth in the UK over the coming months. On the Brexit front, the government's newly created Alternative Arrangements Working Group is meeting for a second day to brainstorm an alternative solution to the Irish backstop, but this looks like a forlorn effort with the EU's chief negotiator, Barnier, has restated that the withdrawal agreement "cannot be reopened." We retain a near-term bearish view of the pound, though see scope for a potentially strong rally should a no-deal Brexit be concretely ruled out (which we expect, although it may be a while yet time in coming).

    [USD, CHF]
    EUR-CHF has settled near the 1.1400 level, holding below last week's 11-week high at 1.1429. The cross has been going through phase of relatively high volatility, which has produced several bouts of pronounced underperformance in the Swiss franc, often accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said recently 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 month 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 lodged to a consolidation of recent losses in the lower 1.3100s. The pair printed a three-month low at 1.3068 on Friday. The Canadian Dollar has gained nearly 4% versus its U.S. counterpart on the year-to-date, benefitting from recent strong gains in oil prices, with crude prices having rallied over 20% on the year so far. This is a boon to Canada's terms of trade. USD-CAD has resistance at 1.3148-50, and support at 1.3065-67.

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