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By XE Market Analysis February 10, 2020 7:02 am
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    XE Market Analysis: North America - Feb 10, 2020

    The dollar has consolidated gains seen on Friday following the robust employment report out of the U.S. The coronavirus death toll surpasses that for the SARS outbreak of 2002-2, and there remains as yet little concrete sign that the rate of spread of the virus is abating, which has fed a sputtering price action in Asian and European stock markets today, despite Wall Street having scaled to new record highs on Friday. EUR-USD has been plying a narrow range around 1.0950, above Friday's four-month low at 1.0942, which was a product of dollar strength following the solid January U.S. jobs report. USD-JPY has seen a sub-25-pip range in the mid-to-upper 109.00s. Cable edged out a 10-week low at 1.2872, while the pound ebbed to a six-day low versus the euro. USD-CAD has consolidated off the near 12-week high that was seen on Friday, at 1.3321. A basing in oil prices over the last week, coupled with Friday's above-forecast Canadian jobs report, have given the Canadian dollar an underpinning, which has put a cap on USD-CAD following five consecutive weeks of gains. The Australian dollar managed a near 0.5% gain, rebounding after hitting an 11-year low against the U.S. dollar on Friday. AUD-USD posted a high at 0.6707, which retraced just over half of the decline seen on Friday. Despite the rebound, the Aussie is still showing year-to-date loss of nearly 5% against the U.S. buck.

    [EUR, USD]
    EUR-USD has been plying a narrow range around 1.0950, above Friday's four-month low at 1.0942, which was a product of dollar strength following the solid January U.S. jobs report. The pair has been trending lower since early 2018, dropping from levels near 1.2500 and posting a 32-month low at 1.0879 in early October, the current nadir of the trend. Momentum has faded, however, with the Fed having backed out of its tightening phase after hiking rates three times last year. The central bank has since been engaged in capping the repo rate. Fed funds futures are discounting about 83% odds for a 25 bp easing at the last FOMC meeting of the year in December, which is up from the 73% probability being priced in ahead of the U.S. jobs report on Friday.

    [USD, JPY]
    USD-JPY has seen a sub-25-pip range in the mid-to-upper 109.00s. The yen is likely to remain apt to bouts of safe-haven driven outperformance due to the spread coronavirus, or at least until such time it reaches peak contagion rates. Many economics are now expecting China will see flat quarterly growth in Q1, which will be the first time this has been seen since 2009. Uncertainties about the virus and its economic impact will keep markets on a volatile footing in the coming days and weeks.

    [GBP, USD]
    Cable edged out a 10-week low at 1.2872, while the pound ebbed to a six-day low versus the euro. Brexit related concerns are likely to remain a bearish headwind on the UK currency. The National Institute of Economic and Social Research (NIESR), the UK's oldest think tank, also last week said that the government's economic plan, which is focused on fiscal stimulus to revamp the UK's infrastructure, will be stymied by the prevailing lack of spare capacity in the economy, which would risk driving up inflation and forcing higher interest rates. The NISER said that any positive impact on the economy from higher spending would be less than 0.5% of GDP over the long run, compared with an estimated 3-4% cost of Brexit, forecasting that the government would fall well short of achieving its growth target of 2.8% per year. The Bank of England last week warned that productivity in the UK would be negatively affected by Brexit due to higher trade barriers. The BoE stated that the UK could grow only by 1.1% on average until 2023 without driving up inflation. Such forecasts, coupled with UK Prime Minister Johnson having made clear during a keynote speech last week that his government is not looking for close regulatory alignment with the EU, have been weighing on the pound, which is down by over 1% from week-ago levels versus the dollar, and by nearly 2.4% on the year-to-date.

    [USD, CHF]
    The Swiss franc has ebbed back over the last several days after rallying strongly recently, which produced 3-month highs against the euro. The gains were partly a product of safe-haven demand, and partly as a lasting consequence of the surprising decision by the U.S. to add Switzerland to its list of currency manipulators last month. The U.S. move seems a bit rich given the franc is a demonstrably chronically-overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index), though the Trump administration argues that Switzerland needs a more expansive fiscal policy.

    [USD, CAD]
    USD-CAD has consolidated off the near 12-week high that was seen on Friday, at 1.3321. A basing in oil prices over the last week, coupled with Friday's above-forecast Canadian jobs report, have given the Canadian dollar an underpinning, which has put a cap on USD-CAD following five consecutive weeks of gains.

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