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By XE Market Analysis February 8, 2019 7:17 am
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    XE Market Analysis: North America - Feb 08, 2019

    Forex markets have been lacking directional ambition. EUR-USD managed to briefly break lower, leaving a two-week low at 1.1322, before settling back to near net unchanged levels in the mid 1.1300s. USD-JPY remained in the mid-to-upper 109.00s, and Cable became entrenched in a narrow range in the mid 1.2900s, consolidating after the pound yesterday surged over 1% to a 1.2996 high. AUD-USD was the liveliest of the major Dollar pairings, diving during the Sydney session to a five-week low at 0.7060 after the RBA shaved growth forecasts in its quarterly Statement on Monetary Policy. This follows yesterday's trimming of GDP forecasts by both the European Commission and BoE, for the Eurozone and UK economies, respectively, which have collectively added fuel to the global slowdown narrative. Investors look to be a stasis ahead of next week's round of U.S.-China trade talks in Beijing, which will focus on the issue of intellectual property, where the two sides seem to remain a long way apart on. This comes just weeks before the U.S. has pledged to significantly raise tariffs on Chinese imports. The U.S. Ambassador to the EU, meanwhile, said with regard to the trade truce with Europe that, "the good faith and understanding that existed on July 25 has not been followed through on." In sovereign bond markets, German and Japanese debt yields fell to their lowest in over two years, with the 20-year JGB yield falling to a 27-month low. Asian and European stock markets declined, S&P 500 futures fell 0.6%, while oil prices dipped for a fifth straight day.

    [EUR, USD]
    EUR-USD has continued to ply a narrow range, in the mid 1.1300s, though we remain cautiously bearish, with Bund yields hitting two-year lows earlier following recent disappointing data out of the Eurozone and with the European Commission yesterday slashing GDP growth projections for the Eurozone economy (to 1.3% for 2019, down from 1.9% previously projected). Brexit uncertainty is also in the mix, which January PMI reports evidenced as having a material impact on economic activity on the British side of the channel, which will have some drag on the continent's side. Juxtaposing this has been relatively upbeat incoming U.S. data, although there is a caveat as the data picture is incomplete and distorted as a consequence of the recent partial government shutdown. Another caveat is the U.S.-China trade relations. U.S. President Trump said yesterday that he did not plan to meet with Xi before the March 1 deadline set by the U.S. and China to achieve a trade deal. This ups the ante, with the U.S. having pledged to significantly hike tariffs on Chinese imports on March 2. Markets are restive as the two sides seem to remain a long way apart on the issue of intellectual property, the issue that next week's talks in Beijing will be attempting to bridge. EUR-USD resistance comes in at 1.1380-82, and support at 1.1320-24.

    [USD, JPY]
    The Yen has held steady versus the Dollar and other currencies, despite a risk-off, or risk-cautious, backdrop in global equity markets, although AUD-JPY carved out a four-week low at 77.44. The safe haven theme has been more evident in other markets. German and Japanese debt yields falling to their lowest in over two years. The 20-year JGB yield fell to a 27-month low. MSCI’s Asia-Pacific index shed 0.5%, and S&P 500 futures off by 0.4%, while WTI oil futures are down for a fifth consecutive day. Should risk aversion continue, then USD-JPY would likely at some point break lower. Global growth concerns have ratcheted up, with the RBA, BoE and European Commission all slashing GDP projections for their respective economies over the last day. U.S. President Trump also said that he did not plan to meet with Xi before the March 1 deadline set by the U.S. and China to achieve a trade deal. No doubt a ploy to up the ante, with the U.S. having pledged to significantly hike tariffs on Chinese imports on March 2, but markets are skittish as the two sides seem to remain a long way apart on the issue of intellectual property, the issue that next week's talks in Beijing will be attempting to bridge. USD-JPY has support at 109.07-10.

    [GBP, USD]
    Cable has become entrenched in a narrow range in the mid 1.2900s, consolidating, as most dollar pairings have today, after the pound yesterday surged over 1% to 1.2996 from the 1.2854 low seen in the immediate wake of the BoE's policy announcement. BoE Governor Carney had effectively walked back the dovish undertones of the central bank's guidance, stating that while Brexit-related uncertainty has risen, the overall outlook was still good, especially if a no-deal scenario is avoided. He also stressed that the BoE sees a no-deal Brexit as a low-risk probability (although still preparing for this contingency as a matter of prudence). The pound is still trading at about a 13%-14% discount relative to levels prevailing ahead of the vote to leave the EU in June 2016. A good portion of this discount would likely evaporate at the point that a no-deal scenario can be concretely ruled out, which we expect to happen. Cable has resistance at 1.2996-1.3000, and support at 1.2916-20.

    [USD, CHF]
    EUR-CHF has remained have after yesterday printing a nine-day low under 1.1375. Broad declines in the Euro have been weighing with incoming data continue to painting a picture of a stagnating Eurozone economy. Earlier in the week the cross had spiked to a three-month high at 1.1443. The price action continues a phase of relatively high volatility the cross has been experiencing. Since early January there have been several bouts of pronounced underperformance in the Swiss franc, often accompanied by talk/suspicions of SNB intervention. 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." 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.

    [USD, CAD]
    USD-CAD is up for a fifth consecutive day, today printing a 13-day high at 1.3329, extending a recovery from last Friday's three-month low at 1.3068. The up phase has been concomitant with a down phased in oil prices, which have tumbled by over 5% from week-ago levels. The Canadian Dollar still remains up by some 2.5% against the U.S. buck on the year-to-date. This has been concomitant with the 15%-plus gain seen in oil prices over the same period. Sustained gains in crude prices are a boon to Canada's terms of trade, and vice versa. USD-CAD has support at 1.3267-70, and resistance at 1.3374-76.

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