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By XE Market Analysis February 26, 2019 6:41 am
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    XE Market Analysis: North America - Feb 26, 2019

    The Dollar has traded mixed so far today, gaining versus underperforming Dollar bloc currencies while losing ground to the Yen and, more especially, the Pound. Cable punched above 1.3200 for the first time since late January, while EUR-GBP dove to one-month low terrain with the UK prime minister reportedly shifting position to provide a route to a delay in the Brexit process should her Withdrawal Agreement ultimately fail in parliament. The BBC reported that about a dozen ministers threatened to resign unless this happens. Questions remain about how the delay will be offered, particularly whether it would be pitted against a no-deal Brexit, but the overall odds for no deal have shrunk, and we expect the pound, which is still trading at a marked discount to pre-Brexit referendum levels in 2016, to remain in the ascendant. May will be addressing the House of Commons later. Elsewhere, USD-JPY declined by some 40 pips, back to the upper 110.00s after clocking a two-month high at 111.23 yesterday. The China-proxy AUD-JPY cross has also corrected. This has come with global stock markets turning lower. The lack any formal statements from either the U.S. or China following Trump's delay in tariff hikes has been concerning investors. China's official Xinhua news agency also said yesterday that negotiations would get tougher in the final stages, saying that the "emergence of new uncertainty cannot be ruled out." EUR-USD remained out of the limelight, continuing to ply a narrow range near 1.1350, holding below last week's three-week high at 1.1371.

    [EUR, USD]
    EUR-USD has continued to ply a narrow range near 1.1350, holding below last week's three-week high at 1.1371. A turn lower in global stock markets, with investors wary about the lack of specifics from the U.S.-China trade front, has regenerated some demand for Dollars, although this has been limited. We 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's. EUR-USD has trend resistance at 1.1383-85.

    [USD, JPY]
    USD-JPY has declined by some 40 pips, back to the upper 110.00s after clocking a two-month high at 111.23 yesterday. The China-proxy AUD-JPY cross has also corrected from highs. This has come with the MSCI Asia-Pacific (ex-Japan) equity index turning lower today after hitting a five-month high yesterday. Apparently the lack of a new deadline in the U.S. threat to hike tariffs on Chinese imports, along with the lack of any formal statements from either the U.S. or China following Trump's announcement that the March-1 deadline was being pushed back, has been concerning investors. Any sustain phase of risk aversion in global markets would likely drive USD-JPY lower. The pair has support at 110.40-42.

    [GBP, USD]
    Sterling is the outperformer of the day, which has seen Cable punch above 1.3200 for the first time since late January. Her Majesty's currency is showing a 0.8% gain versus the dollar and a 0.7% advance against both the euro and yen. The biggest gains have been against the dollar-bloc currencies, which have been underperforming amid an encroaching risk-off sentiment, with investors wanting to see more specifics from the U.S.-China trade front (China's official Xinhua news agency said yesterday that negotiations would get tougher in the final stages, saying that the "emergence of new uncertainty cannot be ruled out"). The pound is up by between 1.0% and 1.1% versus the Australian and Canadian dollars, which are the biggest losers out of the currencies we keep tabs on. The UK prime minister is currently chairing a cabinet meeting, reportedly to establish a government position that would enable the Brexit process to be delayed beyond March 29. The BBC reported that about a dozen ministers threatened to resign unless this happens. Questions remain about how the route to delay will be offered, particularly whether the vote to delay would be pitted against a no deal Brexit, but the overall odds for no deal have shrunk, and we expect the pound, which is still trading at a marked discount to pre-Brexit referendum levels in 2016, to remain in the ascendant. Markets will now be sharply focused on May's House address later.

    [USD, CHF]
    EUR-CHF has settled near 1.1350 after lifting over several up-phases yesterday, which left a three-day peak at 1.1368. The price action is the latest episode of relatively high volatility, which has been a reoccurring pattern since early January, many times characterized by bouts of pronounced underperformance in the Swiss franc that are 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 lifted to a two-session high at 1.3213, which is about a big figure up on the three-week low seen yesterday. A sharp, 3%-odd dive in oil prices yesterday took the wind out of the sails of the Canadian currency. Resistance comes in at 1.3244-56, and support at 1.3170-73. Canadian January CPI data is due out tomorrow. we expect an unchanged 0.0% m/m reading as weaker gas prices and a stronger currency compete with another possible jump in air transport and/or telephone services. The BoC has been looking past swings in the airfare component, and that should again be the case for January if another such swing manifests. Total CPI is projected to slow to a 1.3% y/y pace in January from 2.0% in December. We expect the core CPI measures to continue to cruise just under the BoC's 2.0% mid-point. As-expected data to be of little consequence for the Canadian Dollar.

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