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By XE Market Analysis February 19, 2020 7:15 am
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    XE Market Analysis: North America - Feb 19, 2020

    The yen has taken a tumble with global markets once again finding optimism from news of a slight decline in coronavirus cases in China, along with the stimulus measures being enacted. USD-JPY rallied by over 0.5% in making a nine-month peak at 110.43. EUR-JPY also turned higher, breaking above its Tuesday high, while AUD-JPY rallied by over 0.6% in making a two-day peak at 73.91 as risk-off positioning unwound. USD-CAD posted a two-day low at 1.3228, with the Canadian dollar and other dollar bloc currencies outperforming amid the return of risk appetite in markets. Oil prices rallied by over 1.5%. EUR-USD has traded fractionally firmer today, nudging back above 1.0800 after yesterday printing a 34-month low at 1.0785. EUR-JPY and EUR-CHF, among other euro crosses have also recouped some today, after the former yesterday hit a four-month low and the latter a near five-year low. Sterling reversed post-data gains versus the dollar and euro, among other currencies. Cable dropped back to a 1.2973 low after peaking at 1.3023 following a 40-odd-pip rally in the wake of UK January inflation figures, which showed headline CPI rising to 1.8% y/y from 1.3% y/y in December, up on the median forecast for a rise to 1.6% y/y. Given the modest rise in core CPI, coupled with the 15%-plus drop in oil prices from January highs, and the abatement in the latest household income data, the data isn't seen as having much impact at the BoE. EUR-CHF has remained heavy since printing a near-five-year-low at 1.0609 last week. The low was matched yesterday.

    [EUR, USD]
    EUR-USD has traded fractionally firmer today, nudging back above 1.0800 after yesterday printing a 34-month low at 1.0785. EUR-JPY and EUR-CHF, among other euro crosses have also recouped some today, after the former yesterday hit a four-month low and the latter a near five-year low. The euro has been on underperforming list of currencies over the last 10 days or so. Sub-forecast December Eurozone construction output data today and yesterday's release of a much worse than expected January ZEW investor confidence report out of Germany, fit 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 4.5%-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, yield differentials have been holding up, while the dollar has been finding a sporadic underpinning via safe haven demand for Treasuries.

    [USD, JPY]
    The yen has taken a tumble with global markets once again finding optimism from news of a slight decline in coronavirus cases in China, along with the stimulus measures being enacted. USD-JPY rallied by over 0.5% in making a nine-month peak at 110.43. EUR-JPY also turned higher, breaking above its Tuesday high, while AUD-JPY rallied by over 0.6% in making a two-day peak at 73.91 as risk-off positioning unwound. Trying to call the point of peak contagion, and thereby the peak of economic disruption, is tough, though the consensus seems to be that it will happen in March or April, aided by the arrival of warmer weather in the northern hemisphere (although scientists aren't exactly sure if warm weather will have the same quelling effect as it does on flu and cold viruses). Japan's Q4 GDP data, released on Monday, disappointed, showed a 1.6% q/q contraction versus the median forecast for -0.9%. Q3 data were also revised down, and the figures came amid expectations for a dismal current quarter performance given the impact of measures to contain the virus outbreak in China, Japan, and elsewhere.

    [GBP, USD]
    Sterling reversed post-data gains versus the dollar and euro, among other currencies. Cable dropped back to a 1.2973 low after peaking at 1.3023 following a 40-odd-pip rally in the wake of UK January inflation figures, which showed headline CPI rising to 1.8% y/y from 1.3% y/y in December, up on the median forecast for a rise to 1.6% y/y. Core CPI lifted to 1.6% y/y from 1.4% previously, slightly exceeding the median forecast for 1.5%. A combo of higher fuel prices and January airfares falling less than they did in 2019 drove the rise in headline CPI. But, given the modest rise in core CPI, the 15%-plus drop in oil prices from January highs, and given the abatement in the latest household income data, the data isn't likely to make too much difference at the BoE, which is forecasting CPI to remain below the 2% target through to the end of 2021. The data should still, nonetheless, give the two doves on the central bank's Monetary Policy Committee, Saunders and Heskell, pause for thought after voting to cut the repo rate by 25 bp at each of the last three policy meetings. Both 2- and 10-year Gilt yields rotated about 2 bps lower in the wake of the data.

    [USD, CHF]
    EUR-CHF has remained heavy since printing a near-five-year-low at 1.0609 last week. The low was matched yesterday. The pronounced losses the cross has been seeing of late are largely a product of safe-haven demand for the franc. The U.S. last month added Switzerland to its list of currency manipulators. The 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 posted a two-day low at 1.3228, with the Canadian dollar and other dollar bloc currencies outperforming amid the return of risk appetite in markets. Oil prices rallied by nearly 1%, reversing yesterday's losses. The Canadian currency will likely remain to near-term volatility as long as the coronavirus contagion remains in a state of increasing spread. Canada releases CPI figures today, and retail sales data on Friday . CPI is expected to hold at a 2.2% y/y rate in January from the 2.2% y/y pace in December. CPI is seen rising 0.1% (m/m, nsa) after the flat (0.0%) reading in December, as January tends to have a sizeable seasonal upswing. However, there was a notable pull-back in gasoline prices this January. Retail sales are seen rising 0.1% in December after the 0.9% gain in November.

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