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By XE Market Analysis February 11, 2020 7:33 am
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    XE Market Analysis: North America - Feb 11, 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]
    The yen has weakened, reflecting an abatement in the Japanese currency's safe haven premium as global markets take a positive view of the ultimate spread and economic impact of the coronavirus outbreak, despite the the World. One popular view in markets is that coronavirus contagion will peak in March or April, with Chinese growth going to zero or mildly negative quarterly growth in Q1 before rebounding sharply in Q2. There is of course a risk that this markets are mispricing the economic impact of the virus, though central bank stimulus, or the prospect for more, has for now been helping markets look at things from the glass half full perspective. Japanese markets were closed, while the MSCI Asia-Pacific lifted nearly 1%, and European bourses followed suit. EUR-USD printed a lower low for a fifth consecutive day, this time at 1.0905, which is the lowest level seen since early October last year. The new low was largely the product of a phase of dollar strength, with euro crosses mostly holding above lows seen yesterday (though EUR-GBP scraped out an eight-day low before rebounding). The narrow trade-weighted USD index concurrently lifted to a fresh four-month peak, at 98.91. The dollar, underpinned by the relative robustness of the U.S. economy, continues to register as the strongest main currency on the year-to-date, with gains of 4.5%-5.0% versus the weakest, the Australian and New Zealand dollars. USD-JPY punched above yesterday's peak in making a high at 109.94, extending the rebound from the six-day low seen Friday at 109.53. AUD-JPY also rose to a two-day high, at 73.86. Sterling rose, with gains coming largely ahead of the batch of UK data releases, which were mixed relative to expectations. Cable has settled around the 1.2930 mark after capping out at 1.2942. EUR-CHF printed a fresh 34-month low at 1.0660, and USD-CAD posted a rare correction, giving back most of yesterday's gains in making a low at 1.3289.

    [USD, JPY]
    The yen has weakened, reflecting an abatement in the Japanese currency's safe haven premium as global markets take a positive view of the ultimate spread and economic impact of the coronavirus outbreak, despite the the World Health Organization warning that the spread of the virus among those who had not been to China could be "the spark that becomes a bigger fire." One popular view in markets is that coronavirus contagion will peak in March, with Chinese growth going to zero m/m in Q1 before rebounding sharply in Q2. There is of course a risk that this markets are mispricing the economic impact of the virus, though central bank stimulus, or the prospect for more, has for now been helping markets look at things from the glass half full perspective. Japanese markets were closed, though the MSCI Asia-Pacific lifted nearly 1%. USD-JPY punched above yesterday's peak in making a high at 109.93, extending the rebound from the six-day low seen Friday at 109.53.AUD-JPY also rose to a two-day high, at 73.86.

    [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]
    EUR-CHF printed a fresh 34-month low at 1.0660. The pronounced losses the cross has been seeing are partly a product of safe-haven demand for the franc, 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 posted a rare correction, ebbing giving back most of yesterday's gains in making a low at 1.3289. The pair yesterday clocked a four-month high at 1.3329. 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.

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