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By XE Market Analysis January 13, 2020 6:48 am
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    XE Market Analysis: North America - Jan 13, 2020

    Both the yen and the pound underperformed notably, while the dollar traded mixed. USD-JPY punched above the early-December 109.72 high on route to printing an eight-month high at 109.92. EUR-JPY concurrently hit a two-week high, and AUD-JPY an 11-day peak. The new highs reflected an extension in yen underperformance amid a backdrop of rallying global equity markets. The MSCI Asia-Pacific index hit a new 19-month high today with investors anticipating Wednesday's signing of the U.S.-China phase-1 trade deal. The pound, meanwhile, has been hit by a confluence of bearish cues, the latest being unexpected weakness in UK production and GDP data in November. Industrial output declined by 1.2% m/m, while growth came in at -0.3% m/m, versus respective median forecasts for -0.2% m/m and -0.1% m/m. The data followed remarks by BoE's Vlieghe, who said he is ready to cut rates if data doesn't improve (which in turn followed dovish-leaning remarks from Governor Carney last Friday). A report from the UK's Institute for Government found that it will be impossible to deliver the computer systems for the special Brexit arrangements for Northern Ireland's border by the end of the year, while Ireland's deputy prime minister Coveney also said that forming a new trade deal between the EU and UK is "probably going to to take longer than a year." Cable racked up a loss of about 0.7% in making an 18-day low at 1.2961. EUR-GBP was showing a rise of similar magnitude in making a three-week peak at 0.8576. Elsewhere, EUR-USD lifted above its Friday high in making 1.1136 in a move driven by moderate euro outperformance. EUR-JPY has posted a two-week high at 122.31, while EUR-CHF and other euro crosses have also seen gains. The dollar itself has lost some shine in the wake of Friday's below forecast U.S. jobs report for December.

    [EUR, USD]
    EUR-USD lifted above its Friday high in making 1.1136 in a move driven by moderate euro outperformance. EUR-JPY has posted a two-week high at 122.31, while EUR-CHF and other euro crosses have also seen gains. The dollar itself has traded softer in the wake of Friday's below forecast U.S. jobs report for December. U.S. nonfarm payrolls missed with a rise of 145k, while wages and hours worked were soft. Markets are factoring in just over a 55% chance for the Fed to cut by 25 bps or more by year end, up from about the 50% odds being given ahead of the jobs report. The ECB, meanwhile, is embedded in a wait-and-see policy stance. 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 of the trend. Momentum has faded with the Fed having back out of its tightening cycle after hiking rates three times last year.

    [USD, JPY]
    USD-JPY finally punched above the early-December 109.72 high, with the pair making an eight-month high at 109.92. EUR-JPY concurrently hit a two-week high, and AUD-JPY an 11-day peak. The new highs reflected an extension in yen underperformance amid a backdrop of rallying global equity markets. The MSCI Asia-Pacific index hit a new 19-month high today with investors anticipating Wednesday's signing of the U.S.-China phase-1 trade deal. The trade deal will be a major focus this week as the details haven't been made public. There are some doubts about whether China will stick to increased purchases of U.S. goods, though markets haven't been putting much stock in this. The trade issues aside, the real underpinnings of global asset markets have been persisting benign inflation and accommodation central banks. The MSCI all-country world index hit a record highs last week, and looks primed to made further records this week, assuming there aren't any negative surprises from the U.S.-China deal. China's Vice Premier Liu, head of Beijing's trade negotiation team, is travelling to Washington this week to sign the deal. The Trump administration has invited 200 dignitaries to the White House to witness the signing. We are bullish of USD-JPY. The U.S. is enjoying what looks like a goldilocks economy -- growth slower, but still holding comfortably in positive expansion with inflation remaining benign -- while the risk-on vibe in global markets should maintain Japan's yield-hungry investors' confidence in foreign investments.

    [GBP, USD]
    The pound has been hit by a confluence of bearish cues, the latest being unexpected weakness in UK production and GDP data in November. Industrial output declined by 1.2% m/m, while growth came in at -0.3% m/m, versus respective median forecasts for -0.2% m/m and -0.1% m/m. BoE's Vlieghe, meanwhile, said in the FT he is ready to cut rates if data doesn't improve. Governor Carney last Friday described, despite noting some early signs of improvements since last month's election, economic growth as remaining below potential while disclosing that members have been discussing stimulus. This comes with two MPC members, Saunders and Haskell, having voted for 25 bps rate cutes at the last two policy meetings. Meanwhile, a report from the UK's Institute for Government found that it will be impossible to deliver the computer systems for the special Brexit arrangements for Northern Ireland's border by the end of the year. Prime minister Johnson has pledged, and worked into the Withdrawal Agreement legislation, to leave the post-Brexit transition period by the end of the year. Ireland's deputy prime minister Coveney also said that forming a new trade deal between the EU and UK is "probably going to to take longer than a year." Cable racked up a loss of about 0.7% in making an 18-day low at 1.2961.EUR-GBP was showing a rise of similar magnitude in making a three-week peak at 0.8576. We expect the pound will retain a downward bias for now. UK December inflation data on Wednesday is expected to show a continued benign picture.

    [USD, CHF]
    EUR-CHF found a footing after posting a 32-month low at 1.0788 last week 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 currency, 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 has settled just above 1.3050, below the two-week high seen mid last Thursday at 1.3104. The pair has been buoyed by the sharp, 10%-plus correction in oil prices as the U.S.-Iran stand-off de-escalated. This in turn undermined the Canadian dollar, with the consequence of USD-CAD putting in some distance from the three-month low seen on December 31 at 1.2951. Last Friday's dual releases of the December employment reports out of the U.S. and Canada, saw the former miss and the latter exceed expectations a little, though the impact on USD-CAD wasn't long standing with the pair recouping losses seen in the immediate wake of the data.

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