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By XE Market Analysis February 15, 2019 6:56 am
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    XE Market Analysis: North America - Feb 15, 2019

    The Dollar majors have been trading without clear direction. Yen firmness was a theme during the Tokyo session, before the currency ebbed back as risk appetite in stock markets improved. USD-JPY printed a four-day low at 110.25 before recouping to the 110.50 area. EUR-USD, meanwhile, plied a narrow range in the upper 1.1200s, holding comfortably above the three-month low that was seen at 1.1249 yesterday, with yesterday's U.S. retail sales miss having given the pairing some buoyancy. Sterling settled higher after taking a sharp tumble on news of UK Prime Minister May's humiliating defeat in parliament yesterday in a motion that was meant to endorse the government's negotiating strategy. After seeing a one-month low at 1.2773 yesterday, the pair has today recouped back above 1.2800. The vote in the House of Commons yesterday does not have legal significance, and a spokesperson for the prime minister confirmed that the government will continue in its efforts to win concessions on the Irish backstop part of the withdrawal agreement before returning to parliament by no later than February 27. UK January retail sales today beat expectations in rising 1.0% m/m. Some decent corporate earnings and guidance prompted a risk-back-on mood in equity markets after a negative session in Asia. Europe's Stoxx 600 was up 0.8%, as of the early PM, while S&P 500 futures were showing a 0.1% advance, rebounding from losses of nearly 0.5%. The week-long round of U.S.-China trade talks in Beijing finished without a deal, but markets were mollified by the announcement that senior-level discussions will continue in Washington DC next week.

    [EUR, USD]
    EUR-USD has settled in the upper 1.1200s, holding comfortably above the three-month low that was seen at 1.1249 yesterday. The pair has been propped up in the wake of the U.S. retail sales miss, which portends downside risk to the economy, although there has also been evident slowing in the Eurozone economy. While the Fed recently made a hawkish-to-neutral policy shift in terms of forward guidance on Fed funds rates, tightening is stilling happening via the Fed's ongoing post-QE balance sheet shrinking. This suggests the fundamental bias will be for declines in EUR-USD. Resistance comes in at 1.1350, and support at 1.1249-50. The 20-month low seen last November, at 1.1215, provides a downside waypoint. We are anticipating today's U.S. data slate to be neutral-to-positive for the dollar.

    [USD, JPY]
    USD-JPY posted a four-day low at 110.25. EUR-JPY, AUD-JPY and other Yen crosses saw similar declines, with the Japanese currency finding a degree of safe-haven support as global stock markets tipped lower. Japan's Nikkei closed 1.2% for the worse, while the MSCI Asia-Pacific index (ex-Japan) shed over 1%. Yesterday's notable miss in U.S. retail sales has been one bearish force (a post-data survey of economists by Reuters found respondents ascribing a one-in-four chance for the U.S. to enter recession over the coming year). President Trump's decision to call a national emergency to try to obtain funds for his border wall was also pegged as being a negative in market commentaries. Data out of China, showed PPI inflation slowing for a seventh straight month in January to its weakest since September 2016, which highlighted cooling domestic demand in the world's second biggest economy. Also in the mix has been a near 1.5% rally in oil prices, which are at 10-year highs, after Saudi Arabia announced a cut in crude exports. Focus is now on the U.S.-China trade front. The week round of talks in Beijing ended without a deal being struck, but discussions will continue in Washington next week at a senior level. USD-JPY has resistance at 110.70-72, and support at 109.80-83.

    [GBP, USD]
    Sterling has settled higher after taking a sharp tumble on news of UK Prime Minister May's humiliating defeat in parliament yesterday in a motion that was meant to endorse the government's negotiating strategy. Cable printed a one-month low at 1.2773 before recouping and then settling near 1.2800. The pair remains about 1% down on week-ago levels. The vote in the House of Commons yesterday does not have legal significance, and a spokesperson for the prime minister confirmed that the government will continue in its efforts to win concessions on the Irish backstop part of the withdrawal agreement before returning to parliament by no later than February 27. UK January retail sales today beat expectations in rising 1.0% m/m in the headline figure, rebounding after contracting by 0.7% in December (revised up from -0.9%). In the three months to January comparison, sales rose 0.7% versus the three months to December, showing that the underlying trend remains healthy, despite the outsized monthly decline in December (which was a hangover from a robust November, largely reflecting the impact of Black Friday sales, which is a growing phenomenon in the UK). The data suggests that the consumer sector remains, so far, Brexit resilient. This may not last, however, as economic headwinds and the consequences of persisting Brexit uncertainty, which is impacting business investment, are bearing down. The long-awaited clarity on Brexit doesn't look likely to happen for a while yet. The should maintain the 13-15% discount the pound has been trading at in trade-weighted terms since the vote to leave the EU in June 2016. Cable has support at 1.2725-27.

    [USD, CHF]
    EUR-CHF is down for a third consecutive day, posting a three-day low at 1.1337, extending a decline from the five-day high that was seen Tuesday at 1.1406. The three-month high seen on February 5, at 1.1443, was left untroubled by the recent advance. The price action has continued a phase of relatively high volatility that 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, 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 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 carved out a three-week high yesterday, at 1.3340. The high was concurrent with a risk-off turn in global equity markets, which rekindled some demand for the U.S. currency while weighing on the higher beta Dollar bloc currencies. Oil prices still managed to rally by about 1.5% after Saudi Arabia announce it would be trimming supply. This pushed WTI crude prices to a 10-day high at $54.92. Higher oil prices, if sustained, should given the Canadian some support. USD-CAD has support at 1.3266-70, and resistance at 1.3350.

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