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By XE Market Analysis February 25, 2019 6:40 am
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    XE Market Analysis: North America - Feb 25, 2019

    The Dollar traded mostly softer, appearing lose some of its safe haven premium amid a risk-on backstop in global markets. China proxy currencies outperformed, concomitantly with China's SEE staging of a 5.6% rally, which spearheaded a broader risk-on play in markets after President Trump said the U.S. would delay an increase in tariffs on $200 bln of Chinese imports beyond the March-1 deadline, citing "productive" trade talks. Both the Australian and New Zealand currencies rallied by comfortably more than 0.5% against the U.S. buck. AUD-USD and AUD-JPY printed respective two-day highs at 0.7175 and 79.48. USD-JPY drifted back to levels around 110.60-70 after printing an intraday high at 110.86. Last week's high at 110.94 was left unchallenged. Elsewhere, EUR-USD climbed to a two-session high at 1.1367, nearing last week's three-week high at 1.1371. Cable edged out a three-day high at 1.3099. The Brexit process continues. Prime Minister May postponed the vote on her Withdrawal Agreement until March 12, suggesting that she is still hopeful that the EU will concede to giving a legally-binding inclusion of a time-limit on the Irish backstop. Most pundits, and ourselves, think this unlikely. The are also reports that EU is considering a lengthy delay of Brexit, until 2021, as its default position should the UK's Parliament continue to fail to reach compromise, the idea being that this would furnish time to develop plans for the future relationship with the goal of making the contentious Irish backstop redundant.

    [EUR, USD]
    EUR-USD climbed to a two-session high at 1.1367, nearing last week's three-week high at 1.1371. A weakening Dollar, which appears to have seen some of its safe haven premium unwind amid a risk-on backstop in global markets, has given the pairing some buoyancy. Overall, however, we still retain a bearish view of EUR-USD. Concerns about U.S. tariff hikes on automobiles 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, with the U.S. economy looking more resilient relative to the Eurozone economy (especially amid signs of progress on the U.S.-China trade front). EUR-USD has trend resistance at 1.1383-85.

    [USD, JPY]
    USD-JPY settled back to levels around 110.60-70 after printing an intraday high at 110.86. Last week's high at 110.94 has so far been left unchallenged. The China proxy AUD-JPY cross posted a two-session high at 79.37 before settling. This came as China's SSE index surged over 5%, spear-heading a broader risk-on play in markets, after President Trump said the U.S. would delay an increase in tariffs on $200 bln of Chinese imports beyond the March-1 deadline, citing "productive" trade talks. China's official Xinhua news agency reported that an accord was getting "closer and closer" while also warning that negotiations would get tougher in the final stages, saying that the "emergence of new uncertainty cannot be ruled out." The details of what's been negotiated so far are not know publicly, but the clear signs of progress and general view that both sides are ready to make compromises is encouraging for global markets. The 10-year JGB yield was at -0.040%, slightly up on the seven-week low seen on Friday at -0.050%. A sustained phase of risk-on trading in global markets would have the potential to lift USD-JPY and most Yen crosses. USD-JPY has support at 109.82-85.

    [GBP, USD]
    Cable edged out a three-day high at 1.3099, and EUR-GBP a two-session low, at 0.8668. The Pound has subsequently settled back by some 20 pips from these levels. The likelihood of a delay in Brexit, as gleaned from talk from various members of parliament in the UK over the weekend, has taken a stronger hold in sentiment formation, which led to some measured demand for sterling earlier. The prime minister delayed the vote on her Withdrawal Agreement yet again, to no later than March 12, having previously been pencilled in for this Wednesday. Parliament will still on Wednesday debate and vote on various Brexit motions. We don't expect the EU to given the prime minister what she wants, that is a legally-binding time-limit on the Irish backstop in the Withdrawal Agreement. Reuters and other media have reported that the government is still considering options in the even that the EU doesn't concede. The EU, for its part, is reportedly considering a lengthy delay in Brexit, until 2021, as its default position, the idea being that this would furnish time to develop plans for the future relationship with the goal of making the contentious Irish backstop redundant. This might, ultimately, be attractive for May, as this would appear to be the only way Brexit could happen without irrevocably splitting her Tory party. We still think a no-deal Brexit is unlikely; Parliament will have the final say, and the majority of members are demonstrably against no deal. At such time a delay in Brexit is confirmed, or a no-deal Brexit could be concretely ruled out (i.e. put into legislation) , there would be scope for a 5%-plus rally in the Pound.

    [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 descended to a three-week low at 1.3121, which is the culmination of a 10-day down phase from a one-month high at 1.3340. The descent has been concurrent with oil prices rallying to three-month highs. WTI crude benchmark prices are up nearly 26% on the year-to-date, which is a magnitude of movement that will significantly improve Canada's terms of trade. USD-CAD has trend support at 1.3070, and resistance at 1.3148-50.

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