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By XE Market Analysis February 18, 2020 7:43 am
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    XE Market Analysis: North America - Feb 18, 2020

    The yen and Swiss franc firmed as risk-off positioning took a grip after Apple warned that it would missed Q1 revenue guidance, pointing to a slow rebound in factory output in China and forcing a rethinking on the likely impact that the measures being taken to stem contagion of the coronavirus have been having. Regional currencies in Asia have taken a hit, as have the dollar bloc currencies, while dollar has traded mixed. USD-JPY retreated to a five-day low at 109.65, while AUD-JPY posted an eight-day low at 73.28. USD-CAD lifted above Monday's high in making 1.3255, with the Canadian dollar weakening concomitantly with a 1%-plus drop in oil prices. Elsewhere, EUR-USD eked out a fresh 34-month high at 1.0820, even though the pair has only seen a 18-pip range so far today. Cable rebounded to a high of 1.3048 after posting a five-day low at 1.2980. News that that the government's 2020-21 budget presentation won't be delayed (as had been speculated), and data showing a new record high in employment in the UK, gave sterling a boost.

    [EUR, USD]
    EUR-USD has continued a slow-motion descent, eking out a fresh 34-month high at 1.0821, which surpasses the low seen earlier in Asia trading by 2 pips. The range so far today is a paltry 17 pips. The euro remains on the underperforming list of currencies. EUR-CHF, EUR-JPY and EUR-GBP, among other crosses, are also showing declines today. EUR-JPY is trading at four-month lows, and EUR-CHF is near five-year lows. A much worse than expected ZEW investor confidence reading out of Germany, which fell to 8.7 in the headline reading for February, down from January's 26.7, fitted the prevailing view of a sputtering Eurozone economy. The dollar, meanwhile, has been underpinned by the relative robustness of the U.S. economy, and continues to register as the strongest main currency on the year-to-date, with gains of around 5% versus the weakest, the Australian and New Zealand dollars. EUR-USD pair has been trending lower since early 2018, dropping from levels near 1.2500. Although the Fed has backed out of its tightening phase after hiking rates three times last year, the dollar has been finding an underpinned via safe haven demand for Treasuries.

    [USD, JPY]
    The yen has firmed up amid the latest bout of risk-off positioning in markets, sparked by Apple warning that it would missed Q1 revenue guidance, pointing to a slow rebound in factory output in China and forcing a rethinking on the likely impact that the measures being taken to stem contagion of the coronavirus have been having. USD-JPY retreated to a five-day low at 109.65, while AUD-JPY, a forex market proxy on China, posted an eight-day low at 73.28. EUR-JPY hit fresh four-month lows. Sources cited by Reuters said that the BoJ is likely to signal that its goal of reaching its 2% inflation target will remain out of reach for longer, as a consequence of the virus, though this had little impact in offsetting safe have demand for the yen. Japan's Q4 GDP data, released on Monday, disappointed, showing a 1.6% q/q contraction versus the median forecast for -0.9%. Q3 data were also revised down, and the data came amid expectations for a dismal current quarter performance given the impact of measures to contain the virus outbreak in China and Japan, and elsewhere.

    [GBP, USD]
    Cable rebounded to a high of 1.3048 after posting a five-day low at 1.2980. News that that the government's 2020-21 budget presentation won't be delayed (as had been speculated), and data showing a new record high in employment in the UK, gave sterling a boost. Bigger picture, Brexit remains a worry, with Johnson's government having signalled that it wants divergence from the EU (increasing the risk that the UK could leave the Brexit transition period at the end of the year without a new trade deal with the EU, which would see the UK transition to trading solely on less-favourable WTO terms). UK preliminary PMI survey data for February, due on Friday, is also expected to show an abatement in activity following January's post-election bounce.

    [USD, CHF]
    EUR-CHF has lifted modestly since printing a near-five-year-low at 1.0609 last week. 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 lifted above Monday's high in making 1.3270, with the Canadian dollar weakening concomitantly with a 1%-plus drop in oil prices today. Benchmark WTI prices are now down by nearly 2% from the highs seen yesterday. This comes with risk aversion having taken a fresh grip on global markets, prompted by Apple's warning that it will miss Q1 revenue targets. The other dollar bloc currencies, which are all characterised as being commodity currencies, have also been underperforming.

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