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By XE Market Analysis January 7, 2019 7:33 am
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    XE Market Analysis: North America - Jan 07, 2019

    A reversal of risk-off positioning has seen the yen underperform, while currencies with higher beta characteristics, such as the Australian dollar and other dollar bloc units, and developing world currencies, have outperformed most other currencies. The Dollar itself has traded mixed, on net, and EUR-USD settled to an oscillation of the 114.00 level. USD-JPY lifted back above 108.0 on the back of Yen weakness. A show of remarks from a slew of Japanese policymakers aimed at assuaging market nerves after yesterday's thin-market flash crash in USD-JPY, along with expectations for a strong December jobs report out of the U.S. today, which juxtaposes expectations for neutral Fed policy before an ultimate rate cut at the 18-months horizon, have lifted market spirits. USD-CAD dropped for a second straight day, putting in some more distance from the 20-month peak that was seen at 1.3663. A 16-day low has been printed at 1.3431. Focus today will be on the duel releases of the U.S. and Canadian jobs reports for December. We expect the U.S. version to show a 205k headline rise (median 185k), with the unemployment rate to ticking down to a new cycle low of 3.6% from 3.7% in the prior three months. As for Canadian employment, we expect a rise of 20.0k after the 94.1k surge in November.

    [EUR, USD]
    EUR-USD printed a new three-session high, at 1.1448, in an up-move that has continued to be driven by board Dollar weakness, which has been concomitant with a decline in U.S. Treasury yields following tempered comments from Fed Chairman Powell, which has offset the impact of Friday's forecast-smashing December jobs report. We had already shifted to a neutral view of the Dollar after being bullish for much of 2018, based on the view that U.S. monetary policy had ceased to be a support, with Fed fund futures having now priced out further tightening while pricing in a rate cute at the 18-month horizon. On the Euro side of the coin there are increasing signs of flagging economic growth momentum. We see EUR-USD as having entered a broadly sideways range phase as markets continue to fathom the push of the populist political movement in Europe and the pull of a more neutral Fed policy stance. Support comes in at 1.1404-05, and resistance at 1.1454-56, levels which encompass the present situation of the 100-day moving average.

    [USD, JPY]
    USD-JPY lifted back toward the mid 108.00s after printing a low at 108.02 during the Tokyo session. Friday's low at 107.82 was left untroubled. Tempered remarks from Fed's Powell have pushed U.S. Treasury yields lower, despite the strong jobs report on Friday, which has in turn led to a broad offered tone on the Dollar. USD-JPY has support at 107.80-82, and resistance at 108.63-65.

    [GBP, USD]
    Sterling has firmed up versus the Dollar and Euro over the last couple of sessions. Cable has settled in the mid 1.2700s, up on the 21-month low that was printed at 1.2455 last week. UK markets last week largely ignored stronger than expected headline readings in both December UK manufacturing and services PMI headlines. The former showed that Brexit contingency-related activity had buoyed activity in the sector, with the underlying trend remaining demonstrably weak, while the details of the services report were mostly discouraging, with new work increasing only slightly, job creation at its weakest since July 2016 and confidence for the year ahead falling to its second-weakest reading since March 2009, the blame for which was pinned firmly on Brexit uncertainty. The UK economy is likely to remain in a funk, at risk of seeing growth turn negative this quarter depending how the European and global economies hold up, and depending how Brexit unfolds. This should leave the Pound with an overall flat-to-heavy bias. Parliament will vote on the deal on January 15, next Tuesday, according to government sources cited by the BBC. It's looking highly probable that the Brexit deal will be voted down. Of all the possible scenarios at point that next Tuesday's vote rejects May's deal, out best guess is that a new EU referendum will be the path of least resistance. We anticipate that the Pound will remain a sell-into-gains trade for now. Cable has support at 1.2709-10, and resistance at 1.2770-73.

    [USD, CHF]
    EUR-CHF has recouped to around the 1.1250 level amid a backdrop of revived risk appetite in global market. The cross had last week punched out a four-month low at 1.1184, which was seen as the Swiss franc picked up safe haven demand in the wake of Apple's revenue warning (which in turn followed December manufacturing PMI data showing weakening across key global economies). The SNB remained firmly on hold at its quarterly policy meeting last month, continuing to rely on the combination of negative interest rates and the threat of intervention to limit appreciation in the currency in times of heightened uncertainty about the global outlook.

    [USD, CAD]
    USD-CAD has posted a lower low for a fourth consecutive session, this time at 1.3355, which is the lowest level seen since December 13. The move has been driven by a broadly softer U.S. Dollar as markets recalibrate Fed policy expectations following tempered remarks by the central bank's chair, Powell. U.S. Fed funds futures have priced out Fed tightening expectations for 2019 and are factoring in a 25 bp rate cut at the 18-month horizon. USD-CAD's early December low at 1.3160 provides a downside waypoint.

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