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By XE Market Analysis February 22, 2019 6:36 am
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    XE Market Analysis: North America - Feb 22, 2019

    The Dollar has been trading mixed so far today in a forex market lacking a clear directional theme. EUR-USD been making time in the mid 1.1300s, holding within yesterday's 1.1320-1.1366 range. The February German Ifo survey came in below forecasts, at 98.5 in the headline reading, down from 99.1 and the lowest since 2014, with both current conditions and expectations components showing declines. The data painted a more downbeat picture than this week's flash February PMI reports for the Eurozone did. USD-JPY remained buoyant, but in a narrow range in the upper 110.0s, so far holding below the one-week high seen earlier in the week at 110.94. Stock markets in Europe rose and S&P 500 index futures were showing a 0.5% gain as of the late London AM. Risk appetite was underpinned by President Trump, who said yesterday he would be meeting with China's top trade negotiator later today. The Pound tipped moderately lower, with Cable back around 1.3020 after failing to sustain an early-London up-flurry to 1.3051. EUR-GBP concurrently lifted back above 0.8700. Sterling remains up by average 1% against the dollar, euro and yen from week-ago levels, and by 2.8% against these currencies on the year-to-date measure. Ireland published an extensive package of emergency laws for the contingency of a no-deal Brexit, warning such an outcome would lead to a "lose, lose, lose" scenario for the UK, EU and Ireland. In the UK, sign of political fracturing continued in the principal political parties, with members wanting to rule out a no deal. The U.S.-China trade talks will remain a key focus. A positive outcome, one that at least sees the March-1 deadline for the U.S. to hike tariffs on Chinese imports pushed back, would be positive for the Dollar.

    [EUR, USD]
    EUR-USD has been making time in the mid 1.1300s, holding within yesterday's 1.1320-1.1366 range. The German Ifo survey came in below forecasts in the February release, at 98.5 in the headline reading, down from 99.1, with both current conditions and expectations components showing declines. President Trump said he would be meeting with China's top trade negotiator later today. Much is riding on the outcome of the U.S.-China trade talks. A positive outcome, one that a least sees the March-1 deadline for the U.S. to hike tariffs on Chinese imports pushed back, would be positive for the Dollar. Overall, we retain a bearish view of EUR-USD. Concerns about U.S. tariffs on cars imported from the Eurozone along with signs of flagging Eurozone growth momentum, and the associated rekindling in ECB dovishness, should keep the common currency on an overall weakening tack versus the Dollar, given the relative resilience of the U.S. economy. EUR-USD has trend resistance at 1.1383-85.

    [USD, JPY]
    USD-JPY has continued to ply a narrow range in the upper 110.0s, holding below the one-week high seen earlier in the week at 110.94. President Trump said he would be meeting with China's top trade negotiator later today, which helped Chinese stock markets rally, though most bourses across Asia have put in muted performances. S&P 500 futures are flat after the cash version of the index closed out on Wall Street yesterday with a 0.4% loss. Much is riding on the outcome of the U.S.-China trade talks, which has been limiting the commitment in most global markets over the last day or so, having largely priced-in a positive outcome. A source cited by Reuters yesterday said the two sides have started to outline commitments in principle in what is described as the most significant progress yet. Insofar as a positive outcome to the negotiation would likely spark a risk-on phase in global markets, this would be bullish for USD-JPY.

    [GBP, USD]
    The Pound has tipped moderately lower, with Cable back around 1.3020 after failing to sustain an early-London up-flurry to 1.3051. EUR-GBP has concurrently lifted back above 0.8700. Sterling remains up by an average 1% against the dollar, euro and yen from week-ago levels, and by 2.8% against these currencies on the year-to-date measure. The gains reflect a partial unwinding in the pound's Brexit discount, although the situation remains clouded in uncertainty. Through the mists, however, there is a cautious belief that a no-deal Brexit -- despite being deliberately hung out as a political persuasion tool -- will be avoided. Countless businesses on both sides of the channel, and in North America and Asia, have warned about the consequences of a no deal, and Fitch Ratings said the UK risked a prolonged recession and losing its AA rating in this scenario. A report published last week by an Irish Senator and UNESCO also concluded that there would be a return to violence in Northern Ireland in the event a hard border was re-imposed following a no-deal Brexit. Few politicians are wanting to be associated with a no deal. We see the pound, still markedly undervalued, as having potential to rotate to a trading band at least 5% higher at such time that a no-deal Brexit could be concretely ruled out.

    [USD, CHF]
    EUR-CHF has settled in the mid 1.1300s after correcting from a six-day high that was seen last Tuesday at 1.1406. 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 has found a footing, setting in the lower 1.3200s after posting a two-week low at 1.3150 on Wednesday. The pair has been in an overall downward trend since making a three-week high last week at 1.3340. December retail sales are due from Canada today, expected to dip 0.1% after the 0.9% decline in November. As-expected data would track our projection for a 0.1% decline in December GDP after a 0.1% loss in November, consistent with the BoC's view that the oil price plunge will temporarily slow GDP in Q4 and Q1. USD-CAD has support at 1.3148-50.

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