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By XE Market Analysis February 28, 2019 7:14 am
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    XE Market Analysis: North America - Feb 28, 2019

    The Dollar has traded mostly weaker, showing losses of 0.4% against the Euro, 0.8% to the Swiss Franc, which has been the day's outperformer, and a 0.2% advance on the Yen. The U.S. currency fared better against Sterling, which corrected some of its recent strong gains against most currencies, and the Dollar bloc currencies, which have been under some pressure amid a risk-off backdrop in global markets. News that the Trump-Kim support ended abruptly, without a nuclear deal, was taken as a risk-off cue, weighing Asian equity markets and U.S. index futures. Also in the mix was weaker than expected Chinese manufacturing PMI data, which fell back to 49.2 in February from 49.5 in what is now the third consecutive month at contractionary sub-50.0 levels, and the escalation in tensions between India and Pakistan. Another worry is on the U.S.-China trade front, with U.S. Trade Representative Lighthizer remarking in testimony yesterday that the U.S. issues with China are "too serious" to be resolved with promises from Beijing to purchase more goods. USD-JPY printed a low at 110.69, down from yesterday's high at 111.07. EUR-USD and Euro crosses have vaulted higher, which in the former's case has driven a move to a fresh three-week high of 1.1417 so far. EUR-JPY has concurrently rallied to a two-month high, at 126.45, while EUR-GBP is trading higher in what is shaping up to be the first up day for this cross out of the last four days. Perky German state inflation numbers in preliminary February data aided the Euro's gains. Regarding Brexit, markets have adjusting to recent political developments in the UK which have lessened the risk for a no-deal scenario. Goldman Sachs, for instance, is putting 10% odds on for there being a no-deal Brexit, and 35% for a remain-in-the-EU scenario and 55% for a ratified and delayed Brexit.

    [EUR, USD]
    EUR-USD and Euro crosses have vaulted higher, which in the former's case has driven a move to a fresh three-week high of 1.1417 so far. EUR-JPY has concurrently rallied to a two-month high, at 126.45, EUR-CHF has lifted out of intraday lows (the cross dropped quite sharply during the Asian session, and still remains net lower on the day), while EUR-GBP is trading higher in what is shaping up to be the first up day for this cross out of the last four days. Perky German state inflation numbers in preliminary February data are in the mix of sentiment drivers, while the lowered perceived risk for a disorderly no-deal Brexit has also been cited in market narratives. With regard to the latter, Goldman Sachs, for instance, is putting 10% odds on for there being a no-deal Brexit, and 35% for a remain-in-the-EU scenario and 55% for a ratified and delayed Brexit. We suggest trend-following for now, in a low-conviction view. While it can still be argued that the U.S. economy is in relatively better shape than the Eurozone's, incoming U.S. data have been mixed and the Fed's associated policy pause has eroded bullish arguments for the U.S. currency. This said, there are caveats given concerns about a pending U.S. tariff hike on automobiles imported from the Eurozone, along with signs of flagging growth momentum in Europe, particularly in the production sector. EUR-USD has support at 1.1380-83, and nascent-trend resistance at 1.1437-40.

    [USD, JPY]
    USD-JPY has rotated lower, printing a low at 110.69 in Tokyo trading, down from yesterday's high at 111.07, before settling to a narrow-range consolidation in the upper 110.0s. The low was a reflection of a brief bout of safe-haven driven Yen strength following news that the Trump-Kim support ended abruptly, without sitting for a planned lunch or participating in a joint signing ceremony, after failing to reach a nuclear deal has been taken as a risk-off cue in global markets, although equity markets in Asia were aalready in negative territory ahead of the news. Also in the mix of risk-off sentiment drivers have been weaker than expected Chinese manufacturing PMI data, which fell back to 49.2 in February from 49.5 in what is now the third consecutive month at contractionary sub-50.0 levels, and the escalation in tensions between India and Pakistan. Another worry is on the U.S.-China trade front, with U.S. Trade Representative Lighthizer remarking in testimony yesterday that the U.S. issues with China are "too serious" to be resolved with promises from Beijing to purchase more goods. A piece in China's official Xinhua news agency warned earlier in the week that negotiations would get tougher in the final stages, saying that the "emergence of new uncertainty cannot be ruled out." Any sustained phase of risk aversion in global markets would likely drive USD-JPY lower. The pair has support at 110.40-42.

    [GBP, USD]
    Sterling has settled to a consolidation mode after rallying strongly this week as political developments saw the risk of a no-deal Brexit scenario abate. A vote in the UK's Parliament yesterday voted overwhelming in favour of a measure to legislate for the option of delaying Brexit, backing up the prime minister's concession to hold a vote on delaying Brexit should her Withdrawal Deal, and a subsequent vote on whether to leave the EU without a deal, fail (which both look likely at this juncture). A vote on Labour's alternative Brexit plan was also rejected, forcing the party's leader, Corbyn, to embrace a new referendum on EU membership as the party's official Brexit position. The Pound yesterday rallied to respective seven- and 21-month highs versus the dollar and euro, extending gains seen after the UK government put in an option for a delay in the Brexit process, which has defused the no-deal Brexit risk. Sterling is now showing an averaged gain of nearly 5% no the year-to-date versus the dollar, euro and yen, reflecting a marked unwinding in the currency's Brexit discount. Regarding a Brexit delayed scenario, Brussels seems set on only accepting a long, 21-month extension rather than the three-month delay envisioned by the British government, as a means to avoid perpetual three-month delays and to buy time to work on solutions to the Irish border issue.

    [USD, CHF]
    EUR-CHF dropped sharply to a three-day low of 1.1345, while USD-CHF hit a four-week low at 0.9970, reportedly triggering sell stop-loss orders on the break back below parity during the Asian session. The drop was apparently the result of a safe-haven impulse triggered by news that the Trump-Kim support ended abruptly, without sitting for a planned lunch or participating in a joint signing ceremony, after failing to reach a nuclear deal. The price action is the latest episode of relative high volatility, which has been a reoccurring pattern since early January, many times characterized by bouts of pronounced underperformance in the Swiss franc that have often been 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 settled to a sideways path centred on 1.3150. As-expected CPI data out of Canada yesterday cast little impact, while the U.S. Dollar has found a footing following a patch of underperformance. Oil prices have perked up after Monday's 3%-plus rout, which has given the Canadian some support, which has fostered an overall neutral directional bias in USD-CAD. Canadian releases Q4 current account data, which is se en widening to -C$13.0 bln from -C$10.3 bln in Q3, as the goods trade deficit widens during the quarter amid the fall-off in the value of Canada's oil exports. The January IPPI is also on the docket Thursday, as will the CFIB's February Business Barometer index of small and medium sized firm sentiment. Q4 GDP and December GDP are due Friday, along with the February Markit manufacturing PMI.

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