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By XE Market Analysis January 9, 2020 7:12 am
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    XE Market Analysis: North America - Jan 09, 2020

    The dollar has traded mostly firmer, posting two-week highs versus the euro and pound, a 10-day peak versus the yen, a nine-day high against the Canadian dollar, a 16-day peak relative to the New Zealand dollar. Unwinding risk-off premiums supported USD-JPY, while dovish remarks from BoE Governor Carney weighed on Cable, and, indirectly, EUR-USD, and a weak ANZ Commodity Price Index reading took a toll on NZD-USD. The yen continued to decline concomitantly with a recovery stock markets after President Trump took the off-ramp offered him by Iran. Tehran's missile strikes, having caused no casualties, was termed by the foreign ministry to have "concluded" Tehran's response. Trump duly claimed "victory" while public anger in Iran over Soleimani's assassination has ebbed, and investors and the world breathed a sigh of relief, although concerns remain that Iran-back militia in Iraq might go rogue. European and Asian equity equity markets, along with U.S. index futures, continued the recovery that started yesterday. The pan-Asia MSCI index rose 1%, while Japan's Nikkei closed with a 2.3% gain and Australian's ASX index came within in a whisker of the record high that was seen last month. USD-JPY printed a 10-day high at 109.45. Yen crosses also gained, with EUR-JPY and AUD-JPY posting respective one-week and two-day highs. EUR-USD carved out a fresh two-week low at 1.1096, weighed by Cable selling following dovish remarks by BoE Governor Carney. Cable hit a two-week low at 1.3017. USD-CAD pegged a fresh 10-day high at 1.3056.

    [EUR, USD]
    EUR-USD carved out a fresh two-week low at 1.1096, weighed by Cable selling following dovish remarks by BoE Governor Carney. The pair met bids below 1.1100 and has repaired to levels around 1.1110. EUR-USD has been trending lower since early 2018, dropping from levels near 1.2500 and posting a 32-month low at 1.0879 in early October, the current nadir. Momentum has faded with the Fed having back out of its tightening cycle after hiking rates three times last year. Markets are discounting just over 50% odds for the Fed to cut by 25 bps or more by the end of 2020. The ECB, meanwhile, is embedded in a wait-and-see policy stance.

    [USD, JPY]
    The yen continued to decline concomitantly with a recovery stock markets after President Trump took the off-ramp offered him by Iran. Tehran's missile strikes, having caused no casualties, was termed by the foreign ministry to have "concluded" Tehran's response. Trump duly claimed "victory" while public anger in Iran over Soleimani's assassination has ebbed, and investors and the world breathed a sigh of relief, although concerns remain that Iran-back militia in Iraq might go rogue. Asian equity equity markets continued the recovery that started yesterday. The pan-Asia MSCI index rose 1%, while Japan's Nikkei closed with a 2.3% gain and Australian's ASX index came within in a whisker of the record high that was seen last month. USD-JPY printed a 10-day high at 109.45 as the Japanese currency's safe haven premium unwound further. This extends the rebound from yesterday's low at 107.65, which was seen in the initial wake of Iran's missile strike. Yen crosses also gained, with EUR-JPY and AUD-JPY posting respective one-week and two-day highs.

    [GBP, USD]
    The pound has been trading mixed. Cable edged out a two-day low at 1.3092, while euro underperformance following weak data out of Germany saw the pound printed a a six-day high versus the common currency. UK prime minister Johnson is meeting the new president of the European Commission, Ursula von der Leyen, along with the EU's chief Brexit negotiator, Barmier, today. This is where the UK will finally start to talk about a new, post Brexit, trade deal with the EU, and comes with Johnson pledging to limit the post-Brexit transition period to the end of this year, which has been worked into the withdrawal agreement legislation. Von der Leyen argued in a recent interview with Les Echos that it will take longer than 11 months for the EU and UK to reach a new trade agreement. Phil Hogan, the new EU trade commissioner, also predicted, as did S&P Ratings and others, that prime minister Johnson will renege on his self-imposed legal commitment to exit the Brexit transition period by the end of 2020. Hogan drew attention to Johnson's track record for breaking promises, highlighting his pledge last year to "die in a ditch" rather than let Brexit be extended beyond October (another high profile broken promise, made during his campaign to become the Mayor of London, was his pledge to "lie down" in front the bulldozers to stop the expansion of Heathrow airport). We don't see Johnson as being serious about taking UK out of the EU without a trade deal, with the influence of the hardcore Brexit faction of his party having been diluted at the election, and given he has five years before the next election is due. But for now, expect Johnson to remain rhetorically resolute, which will cap the pound's upside potential.

    [USD, CHF]
    EUR-CHF rebounded back above 1.0800 after yesterday posting a 32-month low at 1.0788 following news of Iran's missile strike on two U.S. bases in Iraq. A reversal in risk-off positioning supported the cross with both the U.S. and Iran having stepped back from the cliff edge .The franc continues to play a role as a safe haven, despite the hostile monetary policy of the SNB. Yesterday's low was the culmination of quite a sharp drop from the seven-week peak of December 13, at 1.1033.

    [USD, CAD]
    USD-CAD remained buoyant after rallying concurrently with the near 10% dive in oil prices yesterday. The pair pegged a fresh 10-day high at 1.3056. This puts in some distance from the three-month low seen on December 31 at 1.2951. Aside from oil price dynamics, the Fed's removing a forecast for a 25 bps hike in 2020 at its FOMC policy meeting in December has also been weighing on USD-CAD, with markets presently discounting about 60% odds for the Fed to cut rates by 25 bps or more by the end of 2020. A big focus will be on the dual releases of the December employment reports out of the U.S. and Canada, tomorrow. For the U.S. release, we expect a 180k payroll rise that matches the 180k year-to-date average, with the jobless rate seen holding at 3.5%, alongside gains of 0.1% for hours-worked and 0.3% for hourly earnings. The data face modest downside risk from producer sentiment weakness led by a December ISM drop, a rise in claims through the holidays, and a December vehicle sales drop alongside an assumed pull-back in the vehicle assembly rate to the 11.0 mln area. As for the Canadian employment report, we expect a 50.0k rebound in December after the -71.2k plunge in November. The unemployment rate is seen falling to 5.7% from 5.9%. Overall, we anticipate the data to be bearish for USD-CAD.

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